Dr. David Ackah (PhD)
Institute of Project Management Professionals
Email: drackah@ipmp.edu.gh | drdavidackah@gmail.com
Abstract
With the dramatic plunge in oil prices, school and business shutdowns and increased concern around the impact of COVID-19 (coronavirus), the need for project financiers and borrowers to consider the implications under their finance documents has become even more pressing. COVID-19 is spreading fast across the globe. At the time of writing, the WHO reported cases of COVID19 in 206 countries with the tragic deaths of people. Since 31 December 2019 and as of 15 April 2020, 1 948 511 cases of COVID-19 (in accordance with the applied case definitions and testing strategies in the affected countries) have been reported, including 125966 deaths. The primary focus is necessarily on containment, treating the ill and helping communities cope with the epidemic. Our illustrative scenarios indicate that the potential loss of income in affected countries could be significant, with global GDP declining by up to 3.9%, and developing countries hit the hardest (4% on average, but some over 6.5%). Governments will need to offer significant support to affected businesses and households. In the context of a project finance transaction, the interruption of construction or operations can have significant implications. The project company is typically a thinly capitalized special purpose vehicle and lenders have limited or no recourse to sponsors in circumstances where the project is underperforming. In this note we consider some of the issues under the finance documents for typical project finance transactions. Most facility agreements contain information undertakings with which borrowers need to ensure they comply. The scope of the undertakings will vary across different facilities, projects and sectors, but they are likely to be most extensive during the construction phase of a project. Borrowers will need to consider whether any of these undertakings have been triggered by the COVID-19 outbreak and its impact on the project. Many transactions will also give lenders the right to ask for information and so borrowers will need to ensure that they respond to any such requests within appropriate time limits.
Keywords: Project Financing, Project Financial Risk, COVID-19 Pandemic, COVID 19 Public Financial Administration, COVID 19 Economic Impact, Project Development, World Project Problems.
