City firms continue to scoop millions of pounds in fees from infrastructure contracts award-ed to consortia for projects in countries as far flung as India and Peru.
International project finance has been booming for several years, although some partners report a levelling off of activity in recent months.
But criticism of the the UK's private finance initiative (PFI) the Government's scheme to involve private companies in public works, has obscured what is happening overseas.
“This is a very big sector which is often overlooked,” said Tony Bankes-Jones, head of project finance at Clifford Chance, which is advising the Hong Kong government on the development of a new airport for the colony. “Our level of activity is as buoyant as ever and we are getting several inquiries a week,” he added.
Freshfields' Roger McCormick said it is also involved in several multi-billion dollar energy projects in Quatar and Oman in the Middle East.
But some banks, both European and American, appear less willing to lend than 18 months ago, partly due to the Channel Tunnel, where banks took a cold bath. Consequently, they are less inclined to provide consortia with debt finance on such favourable terms.
Consortia can seek alternative funding from the bond markets, and other sources such as export credits and equity finance. But there are disadvantages, not least the reluctance of bondholders to support refinancings. As one partner put it: “As soon as something goes wrong, you cannot see the bondholders for dust.”
If banks and others are becoming more cautious, projects will need to be more innovative to attract lender support.
Firms are benefiting from investment in the developing countries of the Far East and beyond, but banks and others will not support investing consortia unless projects are structured sensibly, no matter how strong the local economy.