201504 CM April

FEATURE
SPECIAL
An individual company may wish to set up an
SPV to separate a project from their day-to-day
business. The partners for a Joint Venture may wish
to set up an SPV to be able to clearly allocate costs
and benefits between the partners ...
– IAN SELBY
NEXUS CIFS
initiative might be sponsored by a company
and a research institute or establishing a
new market. In all of these circumstances
the returns may be several years ahead.
Special challenges
Effective underwriting is all about correctly
understanding the various risk factors, not
just the financial data.
The first things to look at are the obvious
items of information in the public domain,
such as Articles of Association for the
company and the ownership structure. Do
the owners have a track record in using
SPVs to deliver projects to market? Why
are they using an SPV on this occasion?
Where there are a number of partners,
it is important to understand their role
and relationship to one another. It was
widely reported last month that Interserve
and Atkins have joined forces with China
State Construction Engineering Corp
to work on Dalian Wanda’s Nine Elms
Project in London as part of a drive of
Chinese construction groups entering the
UK market. Although there may be little
track record of these companies working
together, this is clearly part of a larger group
strategy. The Joint Venture structure is key
to allowing foreign companies to ‘dip their
toe’ into the UK market with the help of a
more established player.
Understanding the sources of funding
is equally important. A significant capital
injection rather than debt is always a
good sign. Where there is external debt,
understanding the structure and when
interest and principal repayments become
due can give further comfort if sensibly
structured.
Also key is to understand where you or
your client fits in terms of the supply chain.
For example, if a company is providing the
foundations of a building then they are likely
to be at the top of the payment list when
cash is still readily available.
Lastly, it is crucial to take a view on the
sector the SPV is operating in. Changes
in Government regulation or indeed
international law may alter the picture of
that sector. Shifts in the tax regime could
affect project plans. A good example of
this is in the recent changes to the way
that solar energy projects are treated. Once
extremely popular with the Government,
their importance has been downgraded and
this, coupled with the fall in the price of oil,
could have the potential to affect profits
dramatically.
No magic formula
Besides the usual diligent examination of
the available information and assessing
it with an experienced eye, it can be
necessary to undertake additional research
to understand exactly how the project has
been set up. Diplomatic interviewing of
stakeholders is often vital in obtaining the
necessary background to be able to make
an informed assessment.
Ian has been in the credit insurance
market since 2005 and joined Nexus
CIFS as a Risk Underwriter in 2008. Ian
looks after a wide portfolio of policies
and has specific responsibility for
the construction sector and also has
experience in IT and electronics gained
from his underwriting role prior to joining
Nexus CIFS. ian_selby@creditindemnity.
com.
The recognised standard in credit management www.cicm.com April 2015 19