Asia's sobering wake-up call
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Asia's sobering wake-up call

Just a year ago, project finance was wallowing in liquidity. The Asian crisis has brought about a dramatic reversal. New and revived approaches ­ project bonds, club deals, indexation, hedging, more use of political risk insurance ­ have so far proved only partly successful in getting the business back on the road. James Featherstone reports.

Philip Crotty, head of Asian structured finance for Deutsche Bank, this year's biggest project-finance provider, reflects on the remnants of the business in south-east Asia: "It depends on the country to an extent, but I would say that most of the major projects ­ even ones that were under construction ­ have either been postponed or shelved indefinitely. And there are delays and renegotiations of contracts going on all over the place. Some sponsors have abandoned projects completely, others are trying to keep them warm and then resurrect them when conditions improve."

The market has been hit by devastating problems. Projects' ability to pay back dollar-denominated finance has been compromised where project revenues were in local currencies. In addition, as Asian economies have contracted even local-currency revenues have slumped for most projects. Industry has reduced energy spending; fewer travellers are willing to pay to drive on toll roads; and weakness in commodity prices has hampered the revenue-raising abilities of oil, chemicals and mining projects.

In Indonesia, by far the worst-affected country in the region, the two flagship power projects, Paiton I and Paiton II with combined output of 2,500 megawatts, were suspended, both at an advanced stage of construction.

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