How to get ‘bankable’

With a plethora of options available, the million dollar question for energy firms - in a climate where increased scrutiny on energy operations remains intense - is how to optimally position a project’s investment case to maximise interest from financiers.

Becoming bankable is a complex process requiring an in-depth understanding of potential business risk at each incrementally-larger project scale. Often businesses will oversimplify the process and will focus on selling the project’s most overt ‘virtues’ such as strength of balance sheet. In reality, financiers are conducting far more comprehensive due diligence and taking a far more holistic view of opportunity and risk.

For example, technical risks (which create financial exposures through essentially business interruption) are often most acute in new projects seeking to innovate technologically. It’s also why so many renewables start-ups can struggle to get bankable – much of the newest equipment and technology is still (relatively) unrested in ‘real world’ conditions, thereby technical risks such as tech failure will be high on the list of financier concerns.

Similarly, focusing narrowly on the borrower’s sphere of control, is not sufficient. Financiers will be looking at stakeholders (e.g. regulators, project sponsors/developers, employees), suppliers/contractors, offtakers/customers and other influencing groups (e.g. local communities) and considering how changes in circumstance with how the project either interacts or relies on these groups may well impact the profitable operation of the project. Typically diligence criteria will consider supply, product, operations & maintenance, and finance – and risks across these pillars.

Every project is of course different; the approach to finance will therefore be bespoke to each firm, but broadly, in each stage, from financial concept development, to finance model design and negotiation, signing, and later, project management/control, the borrower needs to commit significant preparation time. Project documentation (drawings, calculations, agreements with non funding project participants such as engineering firms, suppliers etc) and financial documentation (loan agreements, insurance agreements, financial guarantees, warranties) must typically show project progression through its incremental, multi-year stages – typically up to 15 years for traditional E&P projects. As such, the chances of bankability profoundly increased with the appointment of financial advisors with expertise – and critically, a track-record - in structuring and executing project finance deals.

Yet there’s also a school of thought that bankability is more than just ‘de-risking’ for potential investors. In reality, the bankability of a project is determined much earlier – in the project development stage itself, and prior to any approach to financiers. Large projects, particularly those with a public/private element, require risks to be allocated to the right parties during a project’s conceptualisation phase. Failure to do this may be an inability to attract investors. In addition, ‘market sounding’ at this early stage – essentially listening to the needs and red-lines of the lending community – enables the project to be shaped with these concerns in mind, including the ideal structure for risk allocation. Having gathered lenders’ feedback early, theoretically this means fewer complications when the financing process actually begins.