Determinants of loan spread in project finance: An empirical study of geographic diversification of bank syndicates

• Autor(a) principal: Fonseca, João Pedro Gamboia
• Data de Publicação: 2023
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10071/29411
• topic: Projeto financeiro -- Financial project; Loan spread; Geographic diversification; Bank syndicate; Margem de crédito; Diversificação geográfica; Sindicato bancário

I investigate the depth of geographic diversification of bank syndicates as a determinant of loan spread in the context of project finance, using a sample of 650 project finance syndicated loans worth $235 billion from 68 different countries over the period 2012-2021. I hypothesize that the depth of geographic diversification of bank syndicates signals the levels of political, legal and regulatory risk. In that case, ceteris paribus, greater depths of geographic diversification should command a price premium and result in higher loan spreads for the added risk protection. The findings from this research suggest that the levels of political, legal and regulatory risk of the host country have a significant effect on loan syndication and determine the depth of geographic diversification of the bank syndicate. However, and contrary to my expectations, in terms of total and inter-regional diversification the association occurs in the opposite direction expected. In terms of intra-regional diversification the association occurs in the direction expected. With regard to pricing, I do not find evidence that different depths of geographic diversification of the loan syndicate affect loan spreads in support of a trade-off and financial cost of structuring project finance loans with varying levels of insurance against sovereign interference. The results and the implications of the findings for the lenders and borrowers are discussed.