Rating Criteria for Infrastructure Projects

Rating Criteria for Infrastructure Projects

In Nigeria, infrastructure financing relies heavily on budget allocations, borrowing, fiscal resources, and market-based financing. Due to the significant infrastructure gap, government revenue alone cannot suffice, leading to increased borrowing.

The African Development Bank recently approved a $15 million subordinated loan to Infrastructure Credit Guarantee Company Limited (InfraCredit) to strengthen its capital base and bridge Nigeria’s infrastructure financing gap.

Rating criteria for Infrastructure and Project Finance are essential for assessing debt instruments reliant on cash flows from construction and operation of standalone projects or infrastructure facilities, including multiple project assets in different locations.

Project assessment includes evaluating owners or sponsors, ownership structure complexity, relationships with contractors, potential ownership changes, and flexibility in resolving project issues.

Sponsors committed to projects with substantial resources, time, and reputation, along with higher direct equity investment, guarantees, and capitalization retention or public service focus, provide stability.

Main contractors’ experience and credit quality in construction are reviewed, considering timely and budget-compliant project completion to required standards. For large projects, multinational scale operating capacity, technology and project-specific experience, including local expertise enhance project strength.

In some cases, contractors’ financial health is assessed to ensure they have the necessary resources to address cost overruns, delays, and performance challenges, fulfilling financial obligations such as payment of damages.

Ratings consider various risks faced by projects, including revenue fluctuations due to macroeconomic cycles, external shocks, force majeure events, operational and cost pressures, and project bankruptcy.

Note: The credit rating criteria presented here are adapted from India and not that of DataPro Limited.


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