Credit Risk Management Of PPP Aboriginal Ecotourism Project In Canada

Understanding credit risk mitigation instruments available for use and their characteristics is essential to achieve optimal financial protection. In relation to Public Private Partnership(PPP) projects, once a concession agreement is established, the private sector is forced to absorb the risk of sovereign debt default, unless it is efficiently transferred.This study aims to compile a list of commonly used credit risk mitigation instruments; identify the preferred credit risk allocation method in aboriginal ecotourism PPP projects of Yellowknife, Northwest Territories, Canada; and then lay the foundation for its effective use. Private investors are the primary stakeholders studied in this report.Comprehensive literature reviews, unstructured interview and empirical survey questionnaires were the main approaches employed. The results drawn from literature review compiled and then filtered a list of five commonly used credit enhancement techniques: letter of credit, credit default swaps, surety bonds, collateral management, and trade credit insurance. Subsequently, an empirical questionnaire survey indicated that a letter of credit is the most preferred method to credit risk mitigation. Finally, open ended unstructured interviews created a step by step letter of credit implementation guide, whereby advisory notes were provided for each step.A letter of credit is generally preferred above others as a credit mitigation instrument, for it portends particular benefits for the parties involved: customization of documentation by applicant, preservation of capital, bank?s inclination to honor LC, elimination of credit risk, high liquidity, and certainty of payments.To summarize, sampled respondents from Canada indicated that the private sector should take upon a proactive role towards managing credit risk. This study provides domestic and international investors with a better understanding of credit risk mitigation of PPP aboriginal ecotourism projects. The results of this research may be particularly useful to foreign investors from foreign countries, such as China, who are relatively unfamiliar with the Canadian business setting and venturing into the Canadian PPP market may pose a significant risk to their success.The number of overseas companies entering into the Canadian PPP market has been increasing recently. Hence, they could change their strategies to secure themselves from potential losses through efficient risk allocation, which would in turn, improve their long-term success in PPP projects.