It is not uncommon for an equity investor in a Project Company to seek to change their equity interest (including by selling that interest to a new equity investor) as the Project’s risk exposure changes over time. However, in many instances the PPP contract contains restrictions on the ability of equity investors to enter into such transactions. In any event, the Procuring Authority should be aware of this type of activity, and ensure the Project Company remains financially stable and retains the ability to perform its obligations under the PPP contract through the whole duration of a project.

The Project Company involved in a PPP is typically a special purpose vehicle or ‘SPV’, set up for the sole purpose of owning the assets in a project and complying with its obligations under the PPP contract. The Project Company will be owned by equity investors who have financed the equity portion of the project. Where an equity investor changes its equity interest in the Project Company (including by transferring it) this is typically referred to as a ‘change of ownership’. Changes of ownership are also commonly referred to as secondary market transactions.

The definitions of ‘change of ownership’ and the associated ‘change in control’ are often defined in a PPP contract and, as indicated, are typically subject to restrictions – including a requirement that such changes can only be made with the approval of the Procuring Authority. The restrictions are designed to protect a Procuring Authority (particularly during the early stages of a project) from the potentially adverse consequences of a change of ownership of the Project Company. 

According to our research, approximately 18% of the projects analysed went through a change of ownership that required Procuring Authority approval. A third of those occurred in Europe, with substantial numbers in India and Latin America. There was no apparent difference between sectors in likelihood of a change of ownership. The timescale of the data sample size (projects that reached financial close between 2005 and 2015, inclusive) will have an impact on the overall percentage of changes of ownership, as some projects are still in their very early stages. It is also likely that additional changes of ownership have occurred which did not require the consent of the Procuring Authority.

Section structure

This section provides a background to Project Company changes of ownership in Subsection 3.6.1 (Background) and provides guidance on managing changes of ownership. The key elements to successfully managing changes of ownership are summarised below and detailed in Subsection 3.6.2 (Guidance).

A.   When assessing a change of ownership, consider the interests of the Procuring Authority and broader government considerations

B.   Dedicate appropriate resources to assessing a change of ownership including external advisors as necessary

C.   Consider the interests of the lenders when assessing a change of ownership