Due diligence is aimed at identifying and mitigating potential project risks, in order to safeguard the project’s financial structure prior to a funding decision, by predicting its performance and remuneration levels.
Technical and market due diligence reports are essential for the arrangement and underwriting of the term loan and aimed at mitigating risks, thus at safeguarding project profitability.
Factors to Consider
Due to the complexity, size, and location of operations such as roads, oil and gas explorations, dams, and power plants, which are financed as projects, these projects often have challenging environmental and social issues.
- Screening of the project against a list of excluded activities adopted by the financial institution;
- Review of industry sector and environmental and social issues that are typically associated with this type of operation;
- Review the project’s compliance with applicable national environmental and social regulations;
- Review the project sponsors’ track record on environmental and social issues, in terms of potential non-compliance with national regulations or negative publicity;
- Review the project’s compliance against international standards or industry best practice regarding environmental and social issues; and
- Review of the proposed actions (if any) to mitigate potential environmental and social issues associated with the project throughout all phases of the life cycle.