Nigel Page
The financing of emerging-market projects on a limited-recourse basis has been a focus of attention for the past few years. Companies rarely fund such projects off their own balance sheets. Rather they will take equity stakes in special purpose project companies. Lenders only get paid back if the projects succeed.
This has been particularly so with mining projects. Weakening commodity prices have put pressure on mining companies to concentrate on developing projects in emerging markets, where extraction costs are substantially lower than in more developed economies. This trend, already much in evidence, has been exaggerated by the decreasing popularity of hedging. As a consequence of these developments, mining projects have boomed in the former Soviet Union, sub-Saharan Africa, Latin America and across South East Asia.
Emerging-market mining projects raise complex financial and legal issues. Risks proliferate in these economies and it is up to the lawyers representing the project sponsors and lenders to foresee, identify and, as far as possible, neutralize these to an acceptable degree for all concerned. Risks notwithstanding, emerging-market economies are in dire need of foreign capital and, as a result, their governments are keen to encourage investment in what is often their country's principal resource.