Use of Credit Rating Information of Domestic Credit Rating Agencies for Public–Private Partnership Projects in Infrastructure in Bangladesh

Date: February 2014
Type: Papers and Briefs
Country:
Subject:
Series: South Asia Working Papers
Author: Tsunoda, Jiro; Islam, Mohammed Tajul

Description

This report identifies in greater detail the effective use of credit rating to enable financing of public–private partnership (PPP) projects in infrastructure. With the goal to assist the Government of Bangladesh in the successful implementation of PPP, the report shares the key aspects of the government’s policy and strategies for PPP and information on the progress made so far, as well as the challenges faced in taking PPP forward in Bangladesh, and defines the role of credit rating agencies in PPP infrastructure financing.

The report also sums up the constraints in financing PPP arrangements and the potential solutions, and presents an outline of the credit rating methodologies suitable for detailed risk assessment in both PPP project grading and project rating. Although the methodology is not an exhaustive treatment of every factor reflected in ratings of PPP projects, it should enable the reader to understand the key rating factors used by domestic credit rating agencies in the final rating determination.

Public–private partnerships in Bangladesh

The Government of Bangladesh has been putting strong emphasis on PPP since 2009. The overarching goal of this PPP initiative is to ensure that the PPP model continues to meet the objectives of all participants so critical infrastructure is delivered in a manner that provides value for money for the public and private sectors, whilst allocating risk appropriately and providing incentive for the private sector to provide the efficiency and innovation it is best placed to deliver. The key to this endeavor is to link investors and lenders with entities that need funding of large-scale infrastructure projects.

Domestic credit rating agencies play a key role in financial markets by helping to reduce the information asymmetry between lenders and investors. Trustworthy ratings of credit risk and appropriate funding structures in both the public and private spheres are essential to ensure crystallization of credit flows where needed, matching the requirements of investors and lenders for accurate information with that of project developers and enterprises for flexible borrowing at the lowest possible cost.

Contents

  • Abstract
  • Overview of Financing Public-Private Partnership Projects in Infrastructure in Bangladesh
  • Institutional Framework of Financing Public-Private Partnership Projects in Bangladesh
  • Effective Use of Credit Rating to Enable Financing of Public-Private Partnership Projects in Infrastructure
  • The Project Grading Model
  • The Project Rating Model
  • Key Constraints
  • Policy and Business Recommendations
  • Appendixes