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01 October 2007
Project margins are going up – but is the liquidity crunch spawned by US subprime defaults merely the excuse for, rather than the cause of, a necessary price and risk correction in the project market. And if so, how far will that correction go? By Paul Smith.
Generalisations are easy in times of panic, but as the dust settles more subtle effects can be observed. The 'credit crunch' has had a selective impact on project finance deals: the effects are not global and have impacted liquidity most substantially in banks either side of the Atlantic. "It's a liquidity issue rather than a credit issue," is a common refrain from project finance bankers. Also 'crunch' seems too strong a word, as many banks are untouched by the turbulence – Japanese, Middle East and German banks (IKB Bank the exception) still enjoy substantial liquidity.
Some project finance deals have also escaped the effects of the 'credit crunch' altogether, whether by geography, such as the South American and Asian markets (the Mexican toll road deals are a good example of large syndicated deals), by sector or by size.
"The liquidity squeeze has not had much effect on the medium-lower ticket end,"...
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