Harris states that the finance aspect of infrastructure projects has changed: “There is a significant liquidity problem. A lot of the project finance banks have had to be bailed out by governments and have their own issues,” he says. “Also, the Royal Bank of Scotland, which was involved in quite a few Asia projects, has announced that it’s closing its project finance business.”
The result, Harris says, is that it has become more challenging for lawyers to create a loan structure that will work: “The terms for credit are very different now. Previously, the tenor of a loan might have been 15 to 25 years, but now that has shrunk to typically five to seven years. Fees have increased and interest margins have shot up,” he adds.
Has the funding situation put any projects in jeopardy? Harris says he is not aware of any deals which have been cancelled as a result of a lack of liquidity, but he notes that some have been put on hold for restructuring. And while he says that recent government commitments to boost infrastructure spending will help, he believes the real key to getting banks involved again is the involvement of multilateral agencies such as ADB and IFC in transactions.
Ironically, the fact that Hong Kong has had less resort to private funding to date means that its projects are better insulated from the vagaries of the economic downturn. “The vast investments of the [announced] infrastructure projects are government funded, so there should not be a significant issue for Hong Kong,” Farrands says.