First of two parts
While the spotlight often shines on the implementing agency and the private proponent, banks operate behind the scenes as the project’s financial backbone. It is no exaggeration to say that without funding, there is no project.
In this sense, banks are rightly called the “silent partners” in a PPP.
Lenders’ primary role
The most visible role of banks in PPPs is that of lenders, providing the debt component of project financing to complement sponsor equity.
PPPs are typically financed through a mix of equity and debt, with debt often forming the larger portion because it allows sponsors to leverage capital efficiently.
Taken together, these sources demonstrate and establish the financial capacity of the proponent.
The bank’s loan finances construction, equipment acquisition, and initial operating costs. This loan is structured around projected cash flows from user fees, government payments, or availability payments.
The repayment of principal and interest is calibrated based on projected revenues. Banks therefore conduct extensive due diligence on the project’s technical, legal, financial, and environmental aspects before committing funds.
Under the Implementing Rules and Regulations (IRR) of the PPP Code, loan or financing documents must be disclosed, as this is a mandatory provision in PPP contracts.
Their core concern is simple: the viability of repayment.
Beyond debt: Equity and conversion
Banks are not confined to the role of lenders. In some cases, they may provide equity participation, either directly or through investment arms. This aligns their interests with the long-term success of the project, beyond mere repayment.
In certain financing structures, debt may also be converted into equity, particularly in restructuring scenarios.
Debt-to-equity conversion can occur when a project faces financial distress, allowing lenders to assume ownership stakes to preserve value and ensure continuity.
This flexibility reinforces the bank’s role not merely as a creditor, but as a potential strategic stakeholder.
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