The importance of funds and the rise in activity in the secondary markets have been identified in our research this year as two of the most significant developments currently impacting the global projects market. Along with the continuing interest in renewables projects across EMEA, as well as the consequences of corruption scandals throughout Latin America, it is clear that project financing around the world has remained an active field for lawyers involved.
The secondary markets have been pinpointed as a major hub of projects-related work over the past year by sources to our research, who highlighted a substantial amount of activity in relation to M&A transactions and portfolio sales. Lawyers we spoke to in the UK emphasised a trend towards “fewer greenfield brand-new projects and much more acquisition finance and secondary market refinancing projects”, adding that the reduction in greenfield activity is a trend seen across much of Western Europe. As one interviewee put it, “A large number of transactions at the moment are about amendment, extension, refinancing and restructuring – finding ways to leverage transactions rather than the classic or brand-new greenfield project financings.” Lawyers are now “beginning to see capital being recycled through securitisation-type structures as well”, a trend they consider only likely to grow in the coming years.
However, where greenfield projects have occurred, sources have identified a resurgence of the role of traditional banks in the market. One lawyer notes, “We’ve been seeing a lot more activity in the last 12 months; a lot more interest in, and ability to finance, greenfield projects, with more traditional banks coming back into the market.” Over the past few years, banks have played a diminished role in the financing of projects: “Banking business has suffered under the regulatory constraints put on them,” as one source puts it. In that time, the gap has been filled by alternative finance providers including private equity funds and resource-specific funds. Despite this, interviewees note they “now see more opportunity for the mainstream commercial banks to come back in again and provide debt for greenfield and expansion projects”, perhaps paving the way for an increasingly diverse pool of finance sources for the projects market.
“The biggest long-term trend in this area has been the tremendous growth of infrastructure funds across the globe,” observes one interviewee we spoke with. The raising of money for purposes of investment in infrastructure, for instance, has been seen, involving various players including private equity funds, asset managers and pensions funds among others. Lawyers note “a tremendous amount of concentration of money in that form” which has “greatly increased the M&A activity” when it comes to projects and related assets – “What all the money out there has done is increase the number of people buying and selling these assets.” In the US, sources noted that infrastructure finance has been “very slow coming” but have hastened to add it is a considerable portion of projects work in the country. Indeed, as one lawyer put it, “In the US, project finance has come to mean infrastructure finance.”
Across the Middle East, lawyers have witnessed “a big push” towards renewable energy projects in recent years. One source notes, “There have always been a lot of projects going on in renewables in Jordan and Egypt but it’s really coming alive now.” On the oil and gas side there has been a big shift towards petrochemical and downstream projects, creating a growing volume of work in that area. Population-related infrastructure has also come to the fore, with countries announcing the building of major projects, such as Saudi Arabia building wastewater treatment plants as part of the national Water & Electricity Corporation’s “Vision 2030” initiative. Such activity has prompted lawyers to predict a great increase in mandates in the area.
Elsewhere, Israel has seen a significant uptick in government-driven work recently. “The Israeli project finance scene has been asleep for many years and is now awakening,” comments one source. The government is looking to launch a new gas pipeline between the country and Egypt, as well as to commence a host of infrastructure investment projects on roads, subways and highways. The development of its railway and light-rail lines has been singled out by lawyers as “the mega-event of the infrastructure scene in Israel”, and one that is set to provide practitioners in the country with a substantial amount of work in the coming years.
In Africa, “people are still waiting for many places to really get going”, say sources, observing that “there are still major power shortages” in some areas and more of an emphasis on extractive industries – sectors such as oil and mining are “where most international investment is focused”. Despite this, others we spoke note this issue is now often being addressed. They have “seen a trend for developing countries to build infrastructure – such as terminals to receive LNG – to address power shortages and needs”. There remains a lot of work being done on the solar side, with renewables work picking up and “becoming a bigger and bigger slice of the work” for projects lawyers. One interviewee commented, “In the last five years, Africa has been seen as a continent where, if you’re acknowledging the risk you take in being a developer in the market, then equity returns are better than if you did projects in Europe.” It is clear that the legal market envisages no let-up in the EMEA region for projects matters in the coming years, with activity across a range of sectors – from transport to energy – maintaining a high volume.
South America has continued to deal with the aftermath of the major corruption scandals arising from Brazilian construction companies that have plagued the construction and projects industries over the past few years. Consequences of the scandal have not only had an effect in Brazil, but have also reverberated across the continent, with criminal investigations concerning past projects undertaken across several South American countries. For instance, lawyers we spoke to in Peru commented, “Given the situation, the government is being very slow in terms of bringing new projects to market,” adding, “There is a general fear among public servants in bringing projects to market, as they don’t know if several years down the road, they’ll be investigated themselves.” An environment of caution and uncertainty currently seems to permeate the projects space in the region, with a lot of projects either on hold or cancelled, particularly when it comes to those with governmental ties. One source laments, “We are basically now relying on private-side projects or expansions of previous PPP projects,” adding that this is the best way to maintain a level of activity in the sector. However, it remains unclear what impact corruption scandals such as that of Brazilian corporation Odebrecht will continue to have on the projects market across the region.
In the coming years, the projects market expects to see many of the trends from the past 12 months carry on. Sources observe that “renewables in the Middle East, Asia and Africa will continue to be an important part of the project finance mix going forward”. Meanwhile, others predict that “battery-metals projects will be the big thing going into the next year”, emphasising that the focus will be on resources such as lithium, cobalt and nickel – they anticipate big projects in these areas over the next few years. Despite this uncertainty, the ever-evolving nature of financing sources, and the types of projects across the globe, will be sure to provide the legal market with a diverse and active pipeline of work.