What do the published gearing conventions actually say?
That senior debt commonly funds most of a project, and that the range is wide enough to be uninformative on its own. The European PPP Expertise Centre states that senior debt typically covers between 70% and as much as 90% of the total financing requirement in a project-financed public-private partnership, with the remaining 10% to 30% provided by the project company's equity shareholders plus junior or mezzanine debt providers (European PPP Expertise Centre, Guide to Public-Private Partnerships, European Investment Bank, 2021).
The APMG International PPP Certification Guide, the reference maintained by the multilateral-supported certification programme, puts the same point with a wider band and an explicit driver: leverage may run very high, up to or around 90%, or lower, around 60%, depending on the risk profile, and that range slips to 50% to 80% in emerging market and developing economies (APMG International, PPP Certification Guide, section 7.1, read 6 September 2026; the page carries no publication date).
It is worth saying what is not published. No rating agency, development bank or market data provider publishes a general debt-to-equity series for project financings broken down by asset class, and the ratios that circulate as though they were conventions do not appear in either of the primary documents above. A sponsor being told that toll roads gear at a particular ratio and thermal generation at another is being told folklore. The conventions that are published are the two ranges above, and the rule that explains where inside them a project lands.
What actually decides where inside the range a project lands?
Who holds the demand risk. The APMG guide states the rule directly: projects with significant demand risk and therefore less predictable cash flows will show lower leverage, whereas availability payment structures with low risk and very stable cash flows will show high levels of leverage. Government-pays projects, particularly availability-based ones, benefit from higher leverage because they require lower coverage.
That single sentence explains most of the variation sponsors encounter. An availability-based social infrastructure asset paid for being ready, with a public counterparty and no volume exposure, is a stream a lender can size aggressively against. A transport asset paid per user, exposed to an economic cycle and to a route nobody has driven yet, is not, and no amount of sponsor quality changes that arithmetic. Equity is the buffer between the forecast and the debt, and the thicker the forecast's error bars, the thicker the buffer.
Two further inputs move the number without appearing in any table. Jurisdiction is one: the same asset in the same sector carries different gearing where enforcement, currency convertibility and political risk differ, which is what the emerging market band in the APMG guide is measuring. Contractor and counterparty credit is the other, because a risk allocated to a party who cannot carry it has effectively been allocated back to the equity, and lenders price it there.
“Nobody negotiates the equity percentage. They negotiate who carries demand risk, who carries completion risk and who carries currency risk, and the equity percentage is what those three answers add up to.”
When does the equity have to go in?
That is a separate negotiation from how much, and it moves returns more than the percentage does. Three shapes are common in the market, and none of them is published as a convention by any named institution, so they are described here as practice rather than as a standard. Equity may go in first, funding the early construction period before any debt is drawn. It may go in pro rata, alongside debt drawings through construction. Or it may be deferred to the end of construction, with the sponsor's obligation supported by a letter of credit or a parent undertaking.
The economics of that choice are not subtle. Money contributed at the end of a multi-year construction period has been earning elsewhere in the meantime, and the sponsor's internal rate of return on the same project can differ materially between the first and third shapes without a single term of the debt changing. This is why deferred equity structures, in which a bank facility bridges the sponsor's commitment through construction, exist at all: the sponsor is buying time value, and paying a bridge margin for it.
Lenders think about the same choice from the opposite side. Equity in first is equity genuinely at risk during the phase where things go wrong; equity deferred is a receivable, and a receivable is only as good as the credit standing behind it. Which is why a deferred structure is normally accompanied by an instrument the lenders can call on, and why the quality of that instrument, not the existence of the commitment, is what gets negotiated.
What counts as equity to a lender?
Less than a sponsor's own accounts would suggest. Cash contributed to the project company is equity without argument. Subordinated shareholder loans are usually treated as equity for gearing purposes provided they are genuinely subordinated, blocked from repayment while the senior debt is outstanding, and covered by the same distribution tests. Beyond that the treatment tightens quickly.
Contributions in kind attract the most scrutiny. Development costs already incurred, land contributed at book or appraised value, and services provided by a sponsor affiliate are all routinely proposed as equity and routinely discounted, because a lender's question is not what the sponsor spent but how much cash stands between the debt and a loss. A sponsor who is also the contractor faces the sharpest version of this, since the margin inside its own construction contract can look like a way of funding its own equity, and lenders read the contract for exactly that.
There is also a public procurement dimension where a granting authority is involved. Authorities frequently set their own minimum equity requirement in the tender, independently of what lenders would accept, precisely to keep the bidder exposed to the outcome. The APMG guide records Spanish practice as commonly requiring a minimum sponsor equity contribution of at least 15% to 20%, with flexibility to reduce it two or three years after construction is complete and the asset is in service. That is one jurisdiction's practice rather than a global rule, but it is a live reminder that the equity number can be set by the procurement documents before any lender is asked.
How does this compare with a corporate buyout?
The project gears higher and the buyer contributes less, which surprises sponsors coming from corporate transactions. On the corporate side, SPP Capital Partners recorded in July 2026 that lenders have sought equity capitalization equal to at least 40% of enterprise value, with at least 60% of the aggregate equity account required to be new cash, describing that threshold as having eased mildly as conditions favoured issuers (SPP Capital Partners, Market At A Glance, July 2026). Bain & Company put buyout leverage ratios at 30% to 40% against borrowing costs in the 8% to 9% range in the release accompanying its private equity report of 23 February 2026.
So a corporate buyer is commonly funding 40% or more of enterprise value with equity, while a project-financed public-private partnership may fund 10% to 30% of the total financing requirement with equity and junior capital combined. The reason is not lender enthusiasm. It is that a project's cash flow is contractually defined, its uses of cash are controlled by a waterfall, and its assets cannot be sold, encumbered or repurposed by a management team pursuing a strategy. The debt is safer because the borrower has been deprived of most of its freedom.
That is the trade a sponsor is actually making, and it should be priced as such. The lower equity requirement is real, and so is the loss of control, the length of the process, and the fact that surplus cash belongs to the structure until the coverage test says otherwise. A sponsor comparing a project financing against a corporate facility on gearing alone is comparing the two numbers that differ most and ignoring the reason they differ.
| Measure | Published figure | Source and date |
|---|---|---|
| Senior debt share of a project-financed PPP | 70% to 90% of the total financing requirement | European PPP Expertise Centre, Guide to PPP, European Investment Bank, 2021 |
| Equity plus junior and mezzanine capital | The remaining 10% to 30% | European PPP Expertise Centre, 2021 |
| PPP leverage by risk profile | Up to around 90%, or around 60%, depending on risk profile | APMG International, PPP Certification Guide, section 7.1, read 6 September 2026 |
| PPP leverage, emerging and developing markets | 50% to 80% | APMG International, section 7.1 |
| Minimum sponsor equity, Spanish PPP practice | At least 15% to 20% | APMG International, PPP Certification Guide, section 7.5 |
| Corporate buyout minimum equity capitalization | At least 40% of enterprise value, at least 60% of it new cash | SPP Capital Partners, Market At A Glance, July 2026 |
| Corporate buyout leverage ratio | 30% to 40% | Bain & Company, release accompanying its private equity report, 23 February 2026 |
As of September 2026
Sources: senior debt and equity shares of a project-financed public-private partnership are from the European PPP Expertise Centre, Guide to Public-Private Partnerships, European Investment Bank, 2021. Leverage by risk profile, the emerging and developing market band, the demand-risk against availability-payment rule, and Spanish minimum equity practice are from APMG International, PPP Certification Guide, sections 7.1 and 7.5, read 6 September 2026; those pages carry no publication date. Corporate minimum equity capitalization and the new cash requirement are from SPP Capital Partners, Market At A Glance, July 2026. Buyout leverage ratios and borrowing costs are from Bain & Company, in the release accompanying its private equity report of 23 February 2026. No rating agency gearing series by asset class is quoted because none is published. Equity contribution timing conventions are described as market practice and carry no figure, because no named institution publishes them. Nothing here describes a transaction or engagement.
This position sits within our project finance practice.