...at the same time as we build locally-denominated debt and equity securities markets:

 

The following was posted in LinkedIn's 'Global Infrastructure & Project Finance' s discussion forum by Mark Cusack, CEO of Solitaire Capital, (Australia):

 

Less Capital for Project Finance!

Wednesday, November 19, 2014

Yes over coming years this will become more evident as Banks have to hold more liquidity on their balance sheets due to the eventual introduction of Base III which is scheduled for 2019. This will impact Project Finance in a major way which is why you are starting to see the evidence of Private Investment banking emerge to take over from where the banks will no longer be able to service.

The global banks will still be acting as conduits for the movement of monies, as they have the distribution network to administer the flow of monies and of course capture fees on the movement of large sums of monies, as we know what happens in Project Finance.

The banking industry has tried to delay Basel III as long as possible and now looks likely they have extended as much as they possibly can. The likely implications are as follows:

 


1) Weaker Banks will be crowded out of the market as they will find it more difficult to raise capital, at the end of the day if people do not feel safe lending to a weaker institution they will not lend.


2) There will be even more pressure on profitability because their margins will squeeze even further. This will mean they will need to improve productivity most likely digitally which will mean more redundancies in the banking world.


3) It will place less risk on failure and governments having to bail out or nationalise banks which will help the taxpayer.


4) Reduced lending capacity – one of the main core functions is lending money including for project finance and this area will definitely be moved on considering there is less risk in mortgages and other areas like credits cards etc.


5) There will be reduced appetite for bank debt because dividends will likely be decreased.


All these signs point to less liquidity for project finance in the future and let’s hope Non-bank Finance can accelerate rapidly to take over from this market being left behind. Luckily we are now seeing this in the market with an array of Private Investment Banking sources to choose from whether it be all debt, equity or a combination of both. If you have a project let us know and we would be happy to discuss it with you subject to it being shovel ready.