Page 33 - A U4SSC deliverable - Guidelines on tools and mechanisms to finance Smart Sustainable Cities projects

What are investors looking for?

In order to make decisions about their involvement in projects, private companies need some
basic data and knowledge about the resources available. This particularly includes answers to the
traditional questions where, how, who and, ultimately, and why.

• Where is the project? What is the legal and physical status of the place where the project will
be developed?

• How can the solution be achieved within local legislative frameworks, available technology, and
human resources?

• Who will do it: local or external capacity for construction and finance? What are their procurement
strategies?

• Why do it? A real asset development must promise attractive potential positive returns for
investors. These could be financial (profit) or non-financial (positive economic, social or
environmental impacts) that may translate into an improved reputation for the investor. These
profits, financial or otherwise, can also take the form of new contracts and projects, better
financing options coming from sustainably led financiers, or improved terms with current
finance providers. The driver for establishing the value of the project to investors, and therefore
generating financial returns is an understanding that a positive impact will be created by the
public utilization of the assets (i.e. use of hospitals, parks, roads, etc.).

If the accumulation of financial and non-financial returns is lower than the investment, this will lead
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to the failure of the project. For this reason, it is vital to assess the resources available, quantify the
costs in an accountable way, and translate the returns into financial KPIs beforehand, to ensure the
minimum return expected of the project is accurately determined.

Stimulating urban investments

A list of typical financing mechanisms includes, among others:
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(a) project financing: this focuses on the financial assessment of a given project, rather than on the
business/enterprise as a whole. The repayments and interest are set according to the estimated
cash flows and profits generated by the project;
(b) traditional loans and leases: these focus on paying for infrastructure investment over time.
Repayment can come from public-sector or third-party/user payments. This kind of financing
is at the project level, and involves a private equity partner;
(c) vendor finance: in this case, an equipment vendor, an engineering, procurement, and
construction contractor, or another supplier offers financing for the project. An equipment
vendor, for example, might be more willing than a commercial lender to assume those risks
because it has a better understanding of the technical risks of the project, or of the industry
concerned;

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