top project finance banks

top project finance banks

Top Project Finance Banks: Strategies and Success Factors

1. Introduction to Project Finance

Project finance is in vogue and the number of banks active in this specialized branch of corporate finance has grown fast. With the growing number of project finance banks, is the competition in this field intensifying? Or are the growing lenders keeping pace with the increasing but still very substantial deal volume? The first part of this article analyses recent developments in project finance, how the number of project finance banks have increased, and which banks are now the leading project finance lenders. The second part follows a different route. It begins with an explanation of the relatively recent popularity of project finance, then describes the characteristics of this innovative financing technique, and shows which banks have been successful in attracting project finance expertise. Finally, this article identifies the strategies and success factors of those banks who were most successful in building up project finance prowess.

2. Key Players in Project Finance

In structuring the project finance transaction, lending institutions play two main roles. Initially, the lender’s role may be as an arranger of resources, to match a project’s financial needs with appropriate sources of funding. In this initial stage, the lender acts as an underwriter or co-underwriter of a number of financial instruments, including equity and debt packages. In the course of this underwriting part of the loan syndication process, the lender applies its financial expertise to assess the relative risks involved in lending to all parts of the usual capital structure.

The development and nurturing of project finance is a product of the integration of different skill sets brought to the table by project sponsors, structured finance advisors, underwriters, lenders, contractors, suppliers, export credit agencies, host governments, multilateral institutions, investment guarantors, financial intermediaries, and other participants. Each of the aforementioned skilled participants in the project finance arena has its own self-interest, which is driven from both a strategic and tactical perspective in order to minimize its own risk and maximize its reward. Depending on which stage these participants enter into the debate, each is driven by a tailored set of existing or potential deal-specific concerns.

3. Strategies for Success in Project Finance

At its simplest, a project is a journey. There is a departure, a long and hazardous voyage (during which bad things can and often do happen), and, it is hoped, a successful arrival at the desired destination or goal—the actual operation of the project in a manner that delivers acceptable returns. There are many competing views on how the practical aspects of that voyage are best managed. What is the best route of the voyage in the light of history—the prevailing “market understanding”? Should the journey be undertaken on the strength of collective resolve by the project’s stakeholders? Will that be sufficient to get the project underway? Or is a right of passage underwritten by significant, irrevocable support—also known as financing, taking out insurance, or simply skin in the game—essential? If the voyage is subject to the latter constraint, which parties are best equipped to provide that key commercial support? And what are they likely to want in return for so doing?

What are the best strategies for success in project finance? This deceptively simple question has been the subject of much debate. Yet the answer remains elusive. Why? One reason is that much thinking about project finance is couched in generalities—often determined by the cultural predispositions of the individual commentator. Yet project finance is a business—a service business like the law or accounting. And any successful service business is based upon a business model. Indeed, for a service business, a business model is the equivalent of a product in the manufacturing sector. It represents the service provider’s answer to the question: what is it that we are selling? The business model reflects choices about who the client is, what the client needs, how best to deliver an appropriate service, what competence that requires—and what clients must be avoided. These, in turn, determine the expertise and attitudes of the employees and practitioners who work on the relevant transactions, who the competing/collaborating service providers are, and how they are presumed to act.

4. Case Studies of Top Project Finance Banks

In this chapter, we present this information in the form of a case study for each institution. The case studies are structured to give an overview of the main project finance activities of each institution in terms of its targeting of different regions, sub-sectors, and the geographic distribution of its loan portfolio and results for 1998 and 1999. The next part of the case study addresses the execution strategies of each bank, including its involvement in different roles and types of project finance products to the market over the last two years. Finally, we look at the future strategies of the banks: the market trend developments, including their views on areas key to project finance growth and their own strategy for success including their risk management and product differentiation strategies. Finally, the report focuses on specific issues related to the project finance market and transaction innovations, plays in the future on whom we expect to enlarge and expand.

In conducting our research, we analyzed the activities of the leading project finance banks and their latest strategies. We selected seven institutions for our review, which we designated as the top project finance banks: ABN Amro, CIBC, Citibank, Credit Suisse, Deutsche Bank, HSBC, and West LB. This sample was selected to represent a mix of global and regional banks, and both generalist and specialist institutions. The report bases itself on information in the public domain, and we are unaffected by the findings of discussion with any of our institutions. Corporate Strategies Surveys on the institutions in 1998 on the activity and attitudes of the leading project finance banks were undertaken for the chapter. This material was updated for the current report, and specifically for the case studies, through a wide range of secondary data sources and a series of discussions on the banks and their representatives.