Equity support in project finance
Equity support in project finance

The following Banking & Finance guidance note provides comprehensive and up to date legal information covering:

  • Equity support in project finance
  • What is equity support in a project finance transaction?
  • Forms of financial equity support in a project finance transaction
  • Documenting equity support in a project finance transaction
  • Amount of equity support in a project finance transaction
  • Timing of equity support in a project finance transaction
  • Restrictions on distributions in a project finance transaction
  • Restrictions on share transfers in a project finance transaction

In a typical project finance transaction, the project company (ie the borrower) is a special purpose vehicle (SPV) set up specifically for the purposes of the project. This means that it does not have its own experienced employees and its only assets are the project assets.

The sponsor (which is traditionally an entity with more substantial corporate worth and skill) is often required to provide support to the project company to ensure that the project is successful.

What is equity support in a project finance transaction?

Equity support for a project means any form of support provided by the sponsor to the project company.

The two main forms of equity support are:

  1. non-financial equity support arising out of the sponsor's experience, knowledge and technical expertise, including by way of:

    1. skilled personnel who are allocated to the project to oversee and manage its design and development

    2. assistance to procure official licences, authorisations and approvals (particularly in the case of any local sponsor), and

    3. assistance to procure equipment, raw materials and other supplies for the project, and

  2. financial equity support

The focus of this Practice Note is on the second form of equity support—the financial aspects.

Forms of financial equity support in a project finance transaction

Sponsors are rarely able to obtain debt (eg from commercial banks) for 100% of