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Saturday, 18 January 2020

PFI Yearbook 2020

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Welcome to the 2020 Refinitiv Project Finance International (PFI) Yearbook. The Yearbook is our annual publication in which we look at the events of 2019, through case studies and the PFI Awards, and look forward into 2020 with a range of articles in the Global section of the book.

Welcome to the 2020 Refinitiv Project Finance International (PFI) Yearbook. The Yearbook is our annual publication in which we look at the events of 2019, through case studies and the PFI Awards, and look forward into 2020 with a range of articles in the Global section of the book.

This year, we start the Yearbook with profiles of two expanding Asian lenders on the scene – the Asian Infrastructure Investment Bank (AIIB) and Korea Development Bank (KDB). The main Japanese banks and funders have long been at the forefront of the industry but they are now being joined by a new group of banks and institutions from Asia.

We then move on to considering the new power in the market, financial sponsors, and profiling one of the newer breed of project developers, Mainstream Renewable Power.

The transition from Libor is a key technical issue for the market right now and the LNG market, an old project finance favourite, is going through various disruption events. Both are profiled in the book.

Half of the articles in the Global section consider new developments in the renewables market. Power purchase agreements (PPAs) and corporate power purchase agreement (CPPAs) are becoming vital to the development of the market as subsidies and fixed tariffs fall away.

We consider three exciting new renewables markets – Taiwan, albeit not so new now, Vietnam and Poland. But at the same time we look at the more mature Australian market. Opportunities still abound in Oz but the market has faced significant challenges over the last year, providing some lessons perhaps for other growing markets.

Offshore wind continues to be the stand-out sector for the project finance industry, the new LNG if you like – albeit LNG is still very much around.

Equipment supplier costs in the sector are being driven down mercilessly and economies of scale are coming into play with projects getting bigger. The latest turbines are vast structures. GE’s 12MW Haliade-X machine is 260m high with a 220m rotor and 107m blade. Onshore Vestas has developed the V162-5.6MW turbines with a 166m hub height.

Project finance is an important element of the picture. But there has been a curious development this year. Commercial banks have come to dominate the offshore market. Many banks, keen to build their green books, can take a ready-made decent-sized chunk of a large green, or blue, offshore wind project. Construction risk is a factor that limits the involvement of institutional investors.

As Basel IV looms, this should probably not logically happen – banks taking long-term, fairly competitively priced debt on assets. But it is. It is similar to the LNG finance market, which has long been dominated by the banks. What is more, merchant risk is starting to come into play, with at least one sponsor looking at a largely merchant deal. Financing merchant onshore has already become standard in some markets.

Away from offshore and LNG, however, institutional debt is growing more popular, particularly on term-out infrastructure deals. In the investment-grade operating space, banks are the short-term back-up to the longer-term institutional tranches.

One exciting new sector in which both the banks and the institutions play is the fibre-to-the-home (FTTH) market. The definition of infrastructure has become vague over the past few years as the number of pure infra deals falls. Broadband, however, is not one of the new outlining sectors. It is infrastructure, infrastructure that serves the telecoms sector.

There are similarities between the FTTH boom now and the cable build-out boom of the late 1990s. There were plenty of winners and losers back then and consolidation became the key word. Debt-holders will need to pick the right stories.

Rod Morrison, Editor

To see the digital version of this report, please click here

To purchase printed copies or a PDF of this report, please email gloria.balbastro@refinitiv.com

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