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Contractors World  - UK & Ireland
2014 Vol 4 No 2

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Turning a Dream into a Reality - A non-banking financial solution  Page 2 of 5

Amidst all the talk of the options available for expanding Heathrow’s capacity, and the concern about losing its pre-eminent ‘hub’ position to competitors in continental Europe, there has been little comment on how it is all to be financed.

With financial recovery underway, perhaps now would be a good time to put down a marker and say, quite simply, that since the banking implosion of 2008, major project finance has increasingly come from the non-bank finance sector. This sector is now generally recognized to be worth $71-trillion (Source: Bloomberg).

The money comes principally from a small group of some 12 million HNWI’s (High Net Worth Individuals), a statistic tracked annually by the Cap-Gemini World Wealth Report.

It is these individuals, mostly highly successful entrepreneurs, who saw what was coming long before the 2008 crash and started migrating their money away from the traditional banking network from as early as 2002 (Source: Financial Stability Board, Geneva).

These funds now reside with asset managers, hedge funds and other non-bank institutions who invest directly into major projects, particularly those that can show ‘humanitarian’ or environmental benefits.

“…projects that can show they are going to be the ‘biggest, best and most innovative’ in their sector…”

Much of their funding provides 100% debt, although with the funding structures themselves being far removed from traditional bank lending.

They also provide private equity but, again, on structures that differ significantly from the traditional private equity approach of leveraging bank financing into the equation. Probably because there is no longer any bank finance as such.

It can be done

The prospect of building Boris Johnson’s treasured new hub in the Thames Estuary is, let’s face it, very exciting.

We know we can do it, after all just look at what we bequeathed to Hong Kong as a ‘thank you and goodbye’ present.

So, let us consider how Boris or Lord Foster might be able to fund the building of his hub which, for the sake of this article, we’ll call WSC (for Winston Spencer Churchill). After all, if New York can have JFK, London can have WSC. Why not?

The cost for WSC seems to hover around £30bn and there are a number of non-bank financing structures that could be applied which would be a mix of equity, capital leasing and structured debt financing.



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