An Empirical Analysis of Factors Responsible for the Use of Capital Market Instruments in Infrastructure Project Finance
More than underwriting greenfield risk, multilateral development banks play a role in supporting bond holders through risk mitigation, project appraisal, and project structuring.
We provide an empirical analysis of factors affecting the use of capital market instruments for financing infrastructure public–private partnership (PPP) projects. Our findings contain useful policy guidance as the data provide some evidence to suggest that banks play a role in crowding-out bond finance. This is due to the traditionally close relationships banks enjoy with projects which allow them an advantage over bonds. Banks typically finance projects at financial close and bonds refinance banks after projects are operational. The findings are in accordance with the Asian Development Bank’s experience in promoting the use of capital market instruments to finance PPP infrastructure projects. Accordingly, the findings suggest that, more than underwriting greenfield risk, MDBs have a role to play in supporting bond holders through risk mitigation, project appraisal, and project structuring, as bond holders are less capable of mitigating and absorbing project risk than banks.