InfraCredit and the Project Inception Facility

Around the world, large infrastructure projects are frequently stymied by the high cost and high uncertainty of the project inception phase: the research and engineering and planning prior to financial close and start of construction. Could there be a new kind of project inception financial product that would open up capital sources and development expertise? InfraCredit, a leading Nigerian infrastructure credit enhancement firm, is at a pivotal juncture. The firm currently only gets involved with credit support for projects that have cleared the inception stage—but there is a very small flow of incoming deals that qualify for InfraCredit’s guarantees. Accordingly, the firm contemplates backward integrating its operations to raise capital to fund project inception, potentially increasing its influence over a larger pipeline of infrastructure projects in Nigeria. While this strategic shift promises significant growth opportunities, it also introduces considerable financial risks, reputational concerns, and strategic focus issues. The prospect involves navigating complexities such as quality and capacity of project developers, pension fund strength, regulatory environments, revenue uncertainty, and currency risk management. Historically, InfraCredit has focused on large pools of local capital to invest in projects in local currency and eventually repay obligations in local currency. This is attractive to insurance companies, pension funds, endowments, and other entities whose near-term cash receipts and long-term payment obligations are both denominated in local currency as well. InfraCredit must now assess whether to stick with its proven credit guarantee mode, or to take on the added risks and potential rewards of project inception funding. Should InfraCredit go ahead with the new product, what must be its role in the product, and how will this impact its core offerings?