Strategic risk

Solar PV Solar PV

Description (What is the Risk)

Change in shareholding of Private Partner.
Conflicts of interest between shareholders of Private Partner.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

In developed markets the Contracting Authority is less concerned with locking in the shareholders for a certain period of time. This is due to the relatively low level of perceived risk for solar PV projects. In some of the early adopter markets shareholding requirements were imposed. For example in one market, the power purchase agreement requires the original shareholders of the project company (at the time the project has been granted the power purchase agreement) to maintain at least 51% of the total issued shares of the project company until 3 years after the commercial operation date of the project.

Mitigation Measures (What can be done to minimize the risk)

When structuring the project company, the Private Partner may consider using a holding company structure whereby the shares in the project company are held by a holding company. Any change of transfer of interest in the project can then be done at the level of the holding company.

Comparison with Emerging Market

In developed markets is generally unusual for the Contracting Authority to impose limitations on the ?transfers by shareholders.

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Description (What is the Risk)

Change in shareholding of Private Partner.
Conflicts of interest between shareholders of Private Partner.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

Government Authority wants to ensure that the Private Partner to whom the project is awarded remains involved. Bids awarded on basis of the Private Partner's technical expertise and financial resources therefore sponsors should remain involved.

The Private Partner is required to obtain the Government Authority's prior written approval for the dilution, sale, assignment, cession, transfer, exchange, renunciation or other disposal of the whole or any part of the issued share capital of and/or the shareholder loans in and to a direct shareholder in the Private Partner, during the period commencing on the signature date of the Government agreements and ending on the date which falls three (3) years after the commercial operation date of the project. Thereafter, the shareholding can change provided that a change in control (as defined) of the Private Partner is not triggered.

Control in this context is the power, directly or indirectly, to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities or any interest carrying voting rights, or to appoint or remove or cause the appointment or removal of any directors (or equivalent officials) or those of its directors (or equivalent officials) holding the majority of the voting rights on its board of directors (or equivalent body), whether by contract or otherwise.

To the extent a change in control of the Private Partner occurs, the consent of the Government Authority must be obtained.

The Finance Documents will contain similar provisions and will also require consent from investors and lenders following the third anniversary of the commercial operation date for a change in shareholding.

Mitigation Measures (What can be done to minimize the risk)

Contracting Authority will limit Private Partner's ability to change shareholding for a period.

When structuring the project during the financing phase, the Private Partner can structure the project so as to provide a mechanism for shareholders to dispose of their shareholding indirectly prior to the third anniversary of the commercial operation date - provided such disposal does not trigger a change of control.

Shareholder interests, particularly minority shareholding interests, must be protected through mechanisms in the shareholders' agreement of the Private Partner.

Comparison with Developed Market

Contracting Authorities will generally seek to impose controls on changes in shareholding of the Private Partner. The current trend is to focus on the construction period and an initial period of operation. Following this period there may be requirements that any new party which controls the Private Partner demonstrate it has the technical and financial ability to perform the Private Partner's ongoing obligations.

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