When a refinancing is proposed, there is likely to be an asymmetrical distribution of information between the parties.
• The private party is likely to be better informed as to current financial market conditions and the terms on which the project can attract replacement finance. The private party is likely to prioritise its own interests in any refinancing proposal ahead of any benefit to the government party. As such, the government party risks agreeing to a sub-optimal proposal.
• The government party has a stronger understanding than the private party of risks to the State of a refinancing. As such, the private party could underestimate the issues that a refinancing proposal may raise for the State.
Key actions to mitigate these risks include the following:
• There should be early discussions between both the private party and the government party (including DTF) and their respective advisers to openly share information related to any refinancing proposal. Typically discussions on potential refinancing options should commence 12 months prior to the maturity date of existing debt facilities. The appropriate processes are discussed further in section 15.5 below.
• The government party must have robust and ongoing processes for monitoring the financial position of the private party, so that it is able to appropriately scrutinise the information that it receives in relation to the refinancing.