Identifying Critical Bankability Criteria for PPP Projects: The Case of China

Abstract

Public-private partnership (PPP) projects employ a high leverage in terms of debt finance needed by the private consortium. Debt finance providers need to know the bankability-related issues of PPP projects to make the timely arrangement of debt financing and avoid funding problems. However, there is still a lack of a systematic research on the bankability of PPP projects despite the worsening debt arrangement situation for PPP projects after the credit crisis and economic recession from 2008. To bridge this knowledge gap and enhance the practical debt arrangement of PPP projects, this study aims to identify and prioritize the critical bankability criteria of PPP projects. To achieve the objectives, 41 bankability-related criteria were first identified from a comprehensive literature. A structured questionnaire survey was then conducted with 31 industry experts in China who worked in financial institutes and had experienced PPP projects to investigate the relative importance of each criterion. To handle the uncertainty and vagueness of the subjective evaluation from surveys, this study analyzed the relative importance weight of each criterion using a proposed fuzzy analytical hierarchy process-based approach. The results showed that political environment, economic environment, shareholders’ credibility, financial market, legal system, public sector’s reliability, financial structure, and regulatory framework were ranked as the top eight critical bankability criteria. The findings of this study first contributed to the project finance body of knowledge for the bankability of PPP projects. Moreover, the outputs of this study would provide valuable information to the private and public sectors for formulating strategies on improving the bankability of PPP projects.

Risk mitigation in PFI/PPP project finance

“…This assertion confirms studies such as Zhang (2004), Zhu and Chua (2018). As Zhu and Chua (2018) rightly puts it, the technical competence and record of accomplishment of construction contractor is key for evaluating completion risk in PFI projects.…”

“…This assertion confirms studies such as Zhang (2004), Zhu and Chua (2018). As Zhu and Chua (2018) rightly puts it, the technical competence and record of accomplishment of construction contractor is key for evaluating completion risk in PFI projects. The construction stage of projects is considered most critical for financiers, considering that huge funds are committed and interests on loans are only capitalised (Demirag et al , 2011).…”

“…construction and completion risk, operations, supply and demand risk) during PPP financial appraisals. According to Zou et al (2008), critical risks in PPP are risk situations that can give rise to one or more other project risk-factors; and they often rank high on lenders’ risk assessment ladder, due to their impact on the project success and revenue (Zhu and Chua, 2018).…”

Sustainable Banking: The Role of Multilateral Development Banks as Norm Entrepreneurs

“…Whatever disagreements may exist over the definition of "bankability" [66], the bottom line is that without the collateral resources to support implementation, no project will be financed, no matter how legally and technically feasible [67,68]. Banks cannot afford to lend money at sub-par rates of return.…”

Assessing and allocating the financial viability risk factors in public-private partnership wastewater treatment plant projects

“…Ameyaw and Chan, 2015c) to facility the evaluation practice and guide the entrants to assess the risk factors impartially (Shang et al, 2005;Boussabaine, 2014). Additionally, to avert the misunderstanding during the questionnaire answering and guarantee the survey legibility, the questionnaire edition has been aided with the description of each risk factor along with its risk factor name (Cheung and Chan, 2011;Zhu and Chua, 2018). The questionnaire initial format has then been checked by the first author before the presurvey step.…”