Description
Project level equity is the equity provided by sponsors for project finance. Usually, for establishing a special purpose vehicle, a legal entity is specifically set up for a project or joint venture to isolate the financial risk from a parent company. It utilises a non-recourse or limited recourse economic structure.
Instrument category
Equity financing
Implementation status
High - much evidence available
Enabling conditions and success factors
- There need to be no regulatory barriers to project finance.
- Reasonably sophisticated financial market needed.
- High capacity needed in setting up Special Purpose Vehicles.
Instrument benefits
- Can fund large infrastructure investments.
- No personal or balance sheet liability as the project assets function as collateral.
Challenges and risks to implementation
- Due to its complexity, it is not suitable for small projects.
- Generally more expensive than corporate finance.
- Bankability requires long-term project contracts: lenders will frequently ask for government guarantees if state-owned enterprises or public entities are involved.
