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.

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