Shadow Banks to Lend $25 Billion to European Projects, S&P Says

Institutional investors will provide about 10 percent of the 200 billion euros ($262 billion) of project financing to be raised this year in Europe as banks restrict lending amid tighter capital rules, Standard & Poor’s said.

Investors such as BlackRock Inc., Aviva Plc and Allianz SE may lend more than $25 billion to infrastructure projects in Europe this year compared with “virtually zero” two years ago, according to a report from S&P. The region’s transport and energy networks are the focus of the projects, it said.

“Traditional project finance lenders -- governments and the banks -- are under severe economic pressure while demand for capital to fund projects is growing,” London-based S&P credit analyst Michael Wilkins said in the report. “Investment from alternative providers of funding will continue to grow in 2013 and beyond.”

Banks, which provide about two-thirds of global project finance, are being forced under the Basel III international rules to increase capital and liquidity to protect against borrowers’ failure to pay. Areva SA, France’s nuclear power-plant developer, said earlier this month the increased cost of bank loans more than doubled the cost of projects.

Debt from so-called shadow banks, which include insurers, private-equity companies and hedge funds, can be cheaper and come with fewer restrictions than from banks, according to the report. This could lead to borrowers taking on excessive amounts of debt, it said.

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