WHAT create project bankability and how to induce financier’s appetite continue to be a battle ground between financiers and project promoters.
As this battle continues, there is broad divergence among financiers and policy makers that the main barrier for timely investment is not lack of finance, but the lack of packaged, well prepared bankable projects.
This restraint is mainly talked about in emerging countries where it is assumed, there is less domestic public and private finance accessible for project development, project packaging and robust financial analysis, and inadequate appraisals groundwork and many institutional capacities are limited and financial market systems are immature.
Good project groundwork makes the most of financial viability and bankability. But where to begin is essential elements for preparing bankable projects and what are specific dos and don’ts of funding especially long-term projects continue to be missing attention it need.
Thus why, project sponsors both within public and private sector are struggling to finding ways of mobilising financing mix and to identify suitable sources of funding certain strategic projects, that if implemented could create huge multiplier effect.
Even though new financing instruments are being devised that are increasingly netting major funders, see ‘Daily News’ 25th March 2019 pg.18 with title new financing mechanisms sought to support off-grid and mini-grid connectivity in Africa, complain is often made by prospective investors and financiers that there is a lack of bankable projects and the financing isn’t a problem.
Similarly, views on lack of bankable project and inadequately project preparation and packaging reinforces opinion made by Darius Nassiry, Smita Nakhooda, Sam Barnard (2016) who stresses that project preparation for instance infrastructure or any major projects needs to be faster, greener and better to ensure sustainable development is consistent with internationally agreed goals.
Within their call, they however, cautioned that the main barrier to investment and resources of the kind needed is not due to the lack of available finance, but rather a lack of well-prepared and investmentready bankable projects. What do we need do to bridge this gap?
The bankability of a venture to attract financing can signify varying thinking especially on finance flow decor and allied terms and conditions.
For instance, to financiers as opposed to politicians, a project is bankable where it generates sufficient cash flows to meet obligations created during capital cost.
To others, bankability transmits to the ability of a project to yield optimal returns those results to several things that banks and investors, local and international funders want to see before they can commit and invest.
In African business setting when people talk of projects, especially projects designed to use tax payer’s money, can be large and multifaceted and can generate much interest amongst parties.
Thus why in project preparation it is warned to structure the correct deal early, use the right homework and models, and pick the right funding sources.
Any projects, small or large need detailed homework to support the foundation of the definite project’s feasibility in terms of its social and economic desirability, environmental impact, technical and managerial implications and cost-benefit analysis.
Such homework requires to be heralded by a design of the thought, the creation of consensus around project’s purpose, preparation of the initial designs and action plans and a structuring of the project that contains and gauge appropriate public and private options.
Project suggestion documents, notwithstanding its voluminous pages and meticulous bounded look, before investors a signing a cheque a litmus test comprising of at least five elements are critical.
Enticing project idea to a financiers, regardless if these financiers are pension funds, insurance, financial institutions such as bankers or development banks can be nerve-wracking, so whoever is looking for a project credit, small or large, short-term or long-term has prepare himself or herself by putting in the investor’s shoes.
What do they look for when evaluating your project proposal document? Much as could be many features to scan through, here is the five utmost things that an investor wants to know before inking a signature on a cheque in a project.
An investor need to satisfy himself that proposed project will have an outstanding financial performance during project lifecycle. Any stern financiers will look for a potential of high returns and a clear exit opportunity.
Other areas of interest are signs of growth and if proposed projects have plans such as issuing shares or using money to stimulate growth.
But more important if proposed project has in place capacity of handling its financial obligations. When appealing an investors or a banker to loan money it is sensible to demonstrate that guaranteed assets are adequate to cover current or short-term liabilities.
In addition going through project document, investors do carry their own due diligence to assess authenticity not only of data presented but on assumptions used especially when money involved is huge.
In project preparation targeting to seek a loan from an investors, everything aspect has to make logical sense.
While you might think that investor will draw his attention on profit to be generated in the project, many do go a further step by looking for knowledgeable industrialists and management teams sometimes with a track record of high performance and leadership, if any of these are well demonstrated in the borrower’s project document.
Best investors/project sponsors will investigation your business experience and when necessary background in the industry.
Many industrialists tend to take it for granted, but I can assure you, based on my career on investment and business intelligence risk features, appetite and guarantee should be boldly marked to inspire assurance in investors and stakeholders.
For an investor project seeking financing or services to be funded need to be distinctive. Project document has to prove to investors or financier, with concrete evidence, that market potential is big enough to make investing worthwhile.
This is very important because misallocation is stronger within industries and geographical areas than between businesses and areas.
Different types of investors seek different attributes from a business cases. It’s important for industrialist and project promoters to tailor project documents to suite interest of the financier.
Nonetheless, in any scenario, to create a more robust bankable projects that could attract private-sector investment, focus should ensure project preparation and financial products that protect investors from risk are well acknowledged. Project preparation is the key first step of developing projects.
This often comprises developing approaches toward the enabling environment, describing a project scope, determining project feasibility, structuring the project management, providing transaction support, and developing monitoring and evaluation plans.
These are among sorts of things that charm underwriters interest, although given prevailing business environment, progressively, investors are seeking for a strong supporting atmosphere in which investments can flourish.
When an investor(s) are asked what they look for in a project, they would usually state, they like projects that are bankable, where risks are fairly allocated between the beneficiary and the underwriter.
Remember, whether or not a project is bankable that is good-looking enough for financiers to agree to invest, hinge on a number of features comprising the policy and regulatory environment, discussions with relevant interested party, capacity to engage with financiers and cope with transactions, quality of project documentation authenticity and macro-economic development issues that are critical in aligning business processes with the political context and development priorities of the country.