Sponsors
1. Strength and commitment of sponsor: Strong, committed sponsors are crucial to an operation's success, and to a company's ability to survive under adverse circumstances. IFC should evaluate the sponsor's long-term strategic interest in a project, particularly with regard to how important it is to the sponsor's overall business, and the sponsor's commitment in terms of equity contribution, quality of seconded managers and ongoing operational support.
2. Technical experience: Sponsors should have appropriate technical knowledge. If they do not, the sponsors should be willing to partner or hire-in technical management capability.
3. Financial strength: Sponsors should have the ability to provide additional funds when needed. This is particularly the case where large cyclical swings in prices occur, but also in the event of initial weak project performance.
4. Sponsors' conflicts of interest: Where there exists a clear potential conflict of interest resulting from a sponsor's multiple role as owner, supplier, off-taker, contractor and/or manager, IFC should not take a straight equity stake. IFC should ensure that proper monitoring of commercial arrangements, perhaps by an outside agency, takes place.
5. Local vs. foreign sponsors: IFC should promote the inclusion of local sponsors in its project company ownership. A foreign sponsor often has limited knowledge of local conditions. They may lack flexibility and contacts with the market and government.
6. Sponsors' other commitments: IFC should not limit its appraisal of key project sponsors to the sponsoring entity alone, but should also review sponsor group businesses substantively related to it. The failure of related businesses can seriously impair the sponsors' ability to meet their project commitments.
7. Projects with many sponsors: Where there are many sponsoring parties, there can be clashes of interests and of personality, both of which can have serious effects. IFC should attempt to assess the potential for these clashes at appraisal. Independent management can help, especially if it is experienced, respected and forceful.
The above lessons are based on 95 lessons from past IFC investments.
Last updated September 1998.
