The Quantification and Financial Impact of Political Risk Perceptions on Infrastructure Projects in Asia

Abstract

Political risks relate to arbitrary or discriminatory actions taken by home or host governments, political groups, or individuals that have an adverse impact on international trade or investment transactions. Many political risks lack historical or numerical data and are often defined intuitively by project equity investors, lenders, or equipment suppliers. Thus the assessment of political risk has traditionally been more of an art than a science. In this article, the authors describe a methodology they have developed for quantifying qualitative information on risks (the “QQIR Method”) in structured finance transactions that adds value to comprehensive and due diligence risk assessment in such transactions by bridging the gap between qualitative and quantitative risk-assessment methods. The QQIR Method allows perceptions of risks to be quantified. <b>TOPICS:</b>Risk management, fixed income and structured finance