DEAL FLOW PICKS UP IN A MARKET WELL ON THE ROAD TO RECOVERY

Global Finance, Dec 2003 by Platt, Gordon

PROJECT FINANCE

Global Finance Award Winners Forecast a Continued Upturn in 2004

The global project finance market has sprung to life this year, following two years that many institutional and bank lenders would just as soon forget. Will 2004 be the year that the market shifts into high gear? Perhaps.

Global Finance asked winners of its Best Banks in Project Finance awards to provide their views on where the market is headed in the next 12 months. Without exception, bankers say the deal flow is increasing and the outlook is positive.

Global project finance volume rose 21% in the first nine months of 2003, to $64.9 billion from $53.6 billion in the same period of 2002, according to London-based Dealogic ProjectWare. The number of transactions rose by 34%, to 191 from 143.

While there are unmistakable signs of a rebound in activity that is expected to continue in 2004, many markets will remain challenging, says William Chew, project finance credit analyst at Standard & Poor's in New York. It is more important than ever, he says, that projects be carefully structured to avoid potential credit problems.

In Europe, which has been the center of the recent stirring in project finance activity, governments are turning to major infrastructure projects to stimulate stagnant economies. Export credit agencies and the European Bank for Reconstruction and Development are enticing bankers to join a rising tide of projects in Central and Eastern Europe.

Meanwhile, high oil and gas prices are generating increased investment in the energy sector. Alternative sources of power, such as windmills and waste-to-energy projects, are gaining in popularity.

While bankers are excited about the prospects for the year ahead, they remain wary of possible pitfalls. Here, in their own words, is what to look for in 2004.