PPPs benefit from capital market innovations such as the stapled security, unit trust structures and credit enhancement. Recent credit rating downgrades for financial intermediaries including credit insurers will adversely impact competition in PPP bid markets, weaken value for money outcomes and affect the fast-tracking of infrastructure projects which are major attractions of the PPP procurement method.
PPPs are strongly dependant on capital markets although the level of dependency varies across industry sectors, projects and the nature of the revenue stream. In present market conditions, capital will generally be harder to find, it will be more expensive and stricter credit standards may require bidders to take a more conservative approach to risk acceptance. This suggests some weaknesses in bid depth, private sector appetite for greenfield projects and those projects involving patronage risks. A less competitive bid market may also have an adverse impact on value for money outcomes. In summary, debt markets have become strongly risk averse. For projects involving the refinancing of existing debt against mature revenue streams, availability payment streams and sponsor-provided equity, bid market depth and debt market activity levels are expected to remain buoyant albeit with stricter credit standards.