Project Finance Issues in Malaysia

Malaysia is among the more successful countries in the world using BOT, BOO, BLT and every other alphabet in the “soup”. This activity began in the late 80s and now embraces almost every sector of the economy.

The success in Malaysia is largely due to a forward-thinking Government and civil service, an enabling environment/ecosystem with bankers, regulators, capital markets playing their respective roles. And of course, projects that are deemed feasible/viable are readily available.

However, there are issues that seem to hamper a faster implementation of projects:

(i)               framework (from the Government) that readily sets the concession terms of a project. Each project may have its own peculiar features but on a sectoral basis key requirements may include:

-acceptable shareholders’ return;

-bidding process, if any;

-concession period;

-tariffs/toll rates – market driven or regulated? ;

-track record of promoters;

-minimum equity requirement to mobilise initial works;

-timeline from “ground zero” to financial close; and

-other terms.

(ii)              financiers’ expectations:

-financial returns;

-cash flow models;

-track record of promoters;

-credit score – greenfield/brownfield;

-repayment profile;

-credit support/enhancements required

(iii)            promoters/sponsors requirements:

-timeline to closure and commissioning;

-capital structure that is cost efficient;

-risks involved – currency, interest rate, construction and post constructions;

-sources of funding for new entrants into a sector; and

-margins to be expected.

Greater transparency will generate a higher speed and volume in commissioning productive projects in the country and raise Malaysia’s GDP. That’s the success story we need to hear more about!

Photo source: Unit Perancang Ekonomi Malaysia

For more information about project finance, please visit http://www.mpcap.com.my/ or contact info@mpcap.com.my.