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Mardi 15 Octobre 2013

Fitch: Public Private Partnership Require Careful Planning

Public Private Partnership (PPP) failures are often the result of inadequate transaction design and application, according to a new Fitch Ratings report.

'PPPs provide public value, but they need to be crafted carefully. A key assumption is that a normal environment will prevail. But the uniqueness of each PPP and the impossible nature of predicting all future challenges in advance creates a crucial - and vulnerable - link in the chain,' said Cherian George, managing director, Global Infrastructure and Project Finance at Fitch Ratings.

'Success demands competence, and responsibility, on both sides. Without it, friction can occur during the considerable interface between the public and private side over the project lifecycle.'

Transactions with significant advance planning and meaningful public involvement create a better risk/reward balance, benefiting both the public and private sectors in the long run, and consequently, debt investors.

The probability of over-estimation remains high despite decades of experience with forecasting demand. Defaults on debt have largely been driven by underperformance relative to original projections.

PPPs are also vulnerable to over-leverage, which is exacerbated in periods of extreme economic or financial stress. In instances of high leverage, the credit decline was greatest when projects faced traffic and revenue forecasting risk and then significantly underperformed their revenue projections.

Link to Fitch Ratings' Report: Global PPP Lessons Learned

Additional information is available at fitchratings.com


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