Pricing of project finance bonds: a comparative analysis of primary market spreads

Sebastião S. Guedes; João M. Pinto

doi:10.1016/j.jcorpfin.2023.102429

Pricing of project finance bonds: a comparative analysis of primary market spreads

Sebastião S. Guedes
, João M. Pinto

Resultado de pesquisa › revisão de pares

10 Citações (Scopus)

71 Transferências (Pure)

Resumo

This paper provides a comparative analysis of project finance (PF) and traditional corporate finance (CF) bond spreads and pricing. Using a cross-section of 47,196 bonds issued worldwide in the 1993–2020 period, we show that PF and CF bonds are differently priced, PF bonds have higher spreads than comparable CF bonds, and although ratings are the most important pricing determinant for PF and CF bonds at issuance, investors rely on other contractual, macroeconomic, and firms' characteristics beyond these ratings. Our results do not support the hypothesis of PF transactions as mechanisms of reducing sponsoring firms' funding costs: the cost of borrowing affects financing choices and PF transactions' weighted average spread is higher than that of comparable CF bond deals. We also find that economies of scale, risk management, and information asymmetry arguments affect sponsoring firms' choice between PF and CF transactions.

Idioma original	English
Número do artigo	102429
Número de páginas	60
Revista	Journal of Corporate Finance
Volume	82
DOIs	https://doi.org/10.1016/j.jcorpfin.2023.102429
Estado da publicação	Publicado - out. 2023
Evento	2023 European Financial Managemet Association Annual Conference - Cardiff Business School, Cardiff Duração: 28 jun. 2023 → 1 jul. 2023 https://www.efmaefm.org/0EFMAMEETINGS/EFMA%20ANNUAL%20MEETINGS/2023-UK/2023%20meetings.php

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Este resultado contribui para o(s) seguinte(s) Objetivo(s) de Desenvolvimento Sustentável

ODS 9 Indústria, inovação e infraestrutura

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10.1016/j.jcorpfin.2023.102429Licença:

70390897Final published version, 781 KBLicença:

http://hdl.handle.net/10400.14/41309Licença:

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CEGE: Research Center in Management and Economics
Silva, M. (Professor Catedrático), Sousa, R. (Professor Catedrático), Alves, P. (Professor Auxiliar), Madsen, A. (Professor Auxiliar Convidado), Lourenço, A. (Professor Associado), Carvalho, A. S. (Professor Associado), Andrade, A. (Professor Auxiliar), Silva, P. D. (Professor Associado), Vlačić, B. (Professor Auxiliar Convidado), Martins, C. (Professor Auxiliar Convidado), Gomes, C. (Investigador Auxiliar), Gevrek, Z. E. (Professor Auxiliar Convidado), Oliveira, F. G. D. (Professor Associado), Faria, G. (Professor Associado Convidado), Marreiros, H. (Bolseiro), Pinho, J. (Professor Auxiliar Convidado), Machado, J. (Professor Associado), Araújo, J. (Investigador Auxiliar), Pinto, J. (Professor Auxiliar), Rego, A. (Professor Catedrático), Gaspar, J. M. (Investigador Auxiliar), Corbo, L. (Professor Auxiliar Convidado), Costa, L. (Professor Associado), Fernandes, L. (Professor Auxiliar), Sottomayor, M. (Professor Auxiliar), Martins, N. (Professor Catedrático), Hernández-Marrero, P. (Investigador Auxiliar), Gonçalves, R. (Professor Associado), Ribeiro, R. (PI), Coelho, S. L. (Docente Assistente), Pereira, S. M. (Investigador Auxiliar), Silva, S. (Professor Associado), Rodrigues, V. (Professor Associado), Sotiros, D. G. (Investigador Auxiliar), Valverde, C. (Professor Auxiliar), Leitão, A. (Professor Auxiliar), Julião, J. (Professor Auxiliar), Tavares, M. (Professor Auxiliar), Lages, C. R. (Investigador Auxiliar), Elmashhara, M. G. (Investigador Auxiliar) & Teymourifar, A. (Investigador Auxiliar)
1/01/20 → 31/12/25
Projeto

Citação

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title = "Pricing of project finance bonds: a comparative analysis of primary market spreads",

abstract = "This paper provides a comparative analysis of project finance (PF) and traditional corporate finance (CF) bond spreads and pricing. Using a cross-section of 47,196 bonds issued worldwide in the 1993–2020 period, we show that PF and CF bonds are differently priced, PF bonds have higher spreads than comparable CF bonds, and although ratings are the most important pricing determinant for PF and CF bonds at issuance, investors rely on other contractual, macroeconomic, and firms' characteristics beyond these ratings. Our results do not support the hypothesis of PF transactions as mechanisms of reducing sponsoring firms' funding costs: the cost of borrowing affects financing choices and PF transactions' weighted average spread is higher than that of comparable CF bond deals. We also find that economies of scale, risk management, and information asymmetry arguments affect sponsoring firms' choice between PF and CF transactions.",

keywords = "Bond pricing, Project finance, Corporate bonds, Cost of borrowing, Debt choice",

author = "Guedes, \{Sebasti{\~a}o S.\} and Pinto, \{Jo{\~a}o M.\}",

note = "Publisher Copyright: {\textcopyright} 2023 The Authors; 2023 European Financial Managemet Association Annual Conference, 2023 EFMA conference ; Conference date: 28-06-2023 Through 01-07-2023",

year = "2023",

month = oct,

doi = "10.1016/j.jcorpfin.2023.102429",

language = "English",

volume = "82",

journal = "Journal of Corporate Finance",

issn = "0929-1199",

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TY - JOUR

T1 - Pricing of project finance bonds

T2 - 2023 European Financial Managemet Association Annual Conference

AU - Guedes, Sebastião S.

AU - Pinto, João M.

PY - 2023/10

Y1 - 2023/10

N2 - This paper provides a comparative analysis of project finance (PF) and traditional corporate finance (CF) bond spreads and pricing. Using a cross-section of 47,196 bonds issued worldwide in the 1993–2020 period, we show that PF and CF bonds are differently priced, PF bonds have higher spreads than comparable CF bonds, and although ratings are the most important pricing determinant for PF and CF bonds at issuance, investors rely on other contractual, macroeconomic, and firms' characteristics beyond these ratings. Our results do not support the hypothesis of PF transactions as mechanisms of reducing sponsoring firms' funding costs: the cost of borrowing affects financing choices and PF transactions' weighted average spread is higher than that of comparable CF bond deals. We also find that economies of scale, risk management, and information asymmetry arguments affect sponsoring firms' choice between PF and CF transactions.

AB - This paper provides a comparative analysis of project finance (PF) and traditional corporate finance (CF) bond spreads and pricing. Using a cross-section of 47,196 bonds issued worldwide in the 1993–2020 period, we show that PF and CF bonds are differently priced, PF bonds have higher spreads than comparable CF bonds, and although ratings are the most important pricing determinant for PF and CF bonds at issuance, investors rely on other contractual, macroeconomic, and firms' characteristics beyond these ratings. Our results do not support the hypothesis of PF transactions as mechanisms of reducing sponsoring firms' funding costs: the cost of borrowing affects financing choices and PF transactions' weighted average spread is higher than that of comparable CF bond deals. We also find that economies of scale, risk management, and information asymmetry arguments affect sponsoring firms' choice between PF and CF transactions.

KW - Bond pricing

KW - Project finance

KW - Corporate bonds

KW - Cost of borrowing

KW - Debt choice

UR - https://www.scopus.com/pages/publications/85161342337

U2 - 10.1016/j.jcorpfin.2023.102429

DO - 10.1016/j.jcorpfin.2023.102429

M3 - Article

SN - 0929-1199

VL - 82

JO - Journal of Corporate Finance

JF - Journal of Corporate Finance

M1 - 102429

Y2 - 28 June 2023 through 1 July 2023

ER -

Pricing of project finance bonds: a comparative analysis of primary market spreads

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CEGE: Research Center in Management and Economics

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