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1.3.5 Transfer of Shares/Changes in Ownership

This risk refers to the risk for the public partner of a worsening in the performance of the project if the new shareholder (when there is a change in control) is not as capable as, and does not have the capacity, of the original partner.

It is common practice to require the private partner to obtain the government’s prior authorization for a change of control, while changes in shareholdings that do not affect the control of the project company are sometimes (in some countries) only subject to prior communication, which is good practice[10].

This risk is perceived by the private partner (the sponsor in this case, or original shareholders) in a different way: industry developers and financial investors require some level of flexibility so as to access liquidity. Therefore, they will expect to have a reasonable ability to sell their equity position to a third party. This is usually sought after construction and some period of operation (so as to consolidate the value of the project).

It is good practice that a contract provides for a flexible but controllable ability to dispose of and sell the shares to a new investor (at least after the construction period), trying to look for the right balance between the public service concern and the commercial feasibility of the PPP transaction.

[10] Chapter 0.7.3 provides more
information  about this matter.

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