10.24 All PPP transactions are likely to involve equity of some sort. There are effectively two sources for this form of funding, the project company shareholders (or sponsors) and third party specialist equity providers. Equity is the most expensive form of funding as it bears the highest level of risk within the contract.
10.25 The optimum mix of funding between equity and other types of finance will be that which minimises the weighted average cost of capital whilst still meeting all parties objectives. Each funder will have different investment criteria and in addition the mix of funding must be adequate to allow the project company to accept the level of risk transfer that is required. For instance as bank funding is risk averse it is unlikely that a transaction funded 100% by debt will provide sufficient risk transfer to form an acceptable PPP contract unless there is recourse to the project sponsors. In this sort of situation the project will not be value for money and will be much more likely to be "on balance sheet".
10.26 The other key risk borne by equity providers is that of getting the project through the competition and negotiation phases to a successful financial close.
10.27 There tend to be two different types of equity in PPP projects: