What conditions should be met before a bank first disburses project funding?

Before a Pakistani bank makes its first disbursement under a project finance facility, it should confirm that the agreed conditions precedent have been satisfied or validly waived within its authority. Conditions precedent are not just administrative attachments: they determine whether the project has the legal, financial and operational foundation necessary to repay its debt. The content varies by sector, construction stage, public concessions and lender requirements. Corporate resolutions, permits, security perfection, equity funding, engineering reports, insurance and account controls should be examined as separate conditions with distinct consequences.

Structure the CP schedule

The facility agreement should contain a comprehensive schedule specifying each item, responsible party, acceptable form and lender or agent approval standard. A phrase saying "all documents satisfactory to the bank" without measurable detail can create closing disputes. Identify conditions applying to signing, first utilisation and later drawdowns. Some permissions may be needed only before construction at a particular site, while others are essential before any funds are advanced.

Corporate capacity and approvals

Obtain the borrower's incorporation documents, articles, board resolutions and any shareholder approval required for borrowing, guarantees or security. Identify who has authority to sign contracts and utilisation requests. The company should confirm that directors' appointments and powers are current. A relationship manager should not rely on an outdated resolution naming an officer who resigned before financial close.

Executed project contracts

The bank should receive material construction, supply, offtake, concession and operating contracts, with evidence of legal effectiveness. Drafts or unsigned term sheets do not necessarily give enforceable revenue or completion rights. Conditions concerning permits, employer guarantees and termination should be assessed. A project that has only a preliminary buyer expression of interest may lack the committed revenue assumed by the financial model.

Land and site rights

The project company should have adequate ownership, lease, concession or right-of-way rights to build and operate. Verify title, boundaries, encumbrances, access routes and any government approvals. A letter of intent to allocate land is not necessarily legally effective possession. Where an industrial site is mortgaged, prior lender consent may be needed. Financing civil works before access is secured can create stranded expenditure.

Regulatory licences

Check relevant NEPRA, environmental, transport, mining or sector permissions as applicable. The facility should identify which permits must be in force at first disbursement and which can be obtained later as construction progresses. A regulator's acknowledgement of an application is not the same as a final licence. The bank should assess conditions, expiry, transferability and whether licence suspension would affect revenue and security.

Security creation and perfection

Verify execution of mortgages, charges, guarantees, assignments and account pledges, together with any required SECP and property registration. A legal opinion should confirm authority and identify qualifications. The bank should not assume that possession of signed drafts completes perfection. Search existing liens and establish ranking. Security defects discovered only after default can seriously reduce recoverability.

Intercreditor arrangements

Syndicated or multi-bank transactions may require a security trustee, agent appointments, priority deed and cash-sharing arrangement. The parties should agree how lenders vote, enforce and release security. A first disbursement by one bank can prejudice the agreed structure if other lenders' approvals or pari passu security steps remain unfinished. The facility agent should certify CP satisfaction consistently for all participating lenders.

Equity and sponsor funding

Project finance often requires sponsors to contribute committed equity before or alongside debt. The bank should verify paid-in funds, shareholder support agreements or legally binding commitments as specified. A letter stating investors intend to subscribe next quarter may not meet a cash-equity condition. The debt-to-equity ratio should be checked from actual eligible investment, not a figure inflated by shareholder loans that the agreement excludes.

Independent technical review

An independent engineer may confirm design, budget, construction programme and viability. Technical review should address completion risk, contractor capacity, site access and interface obligations. A bank financing a complex plant should not rely solely on the sponsor's optimistic estimate. Material findings should be resolved or transparently reflected in contingency and drawdown conditions. A formal report is useful only if its scope includes the real risks.

Model and financing ratios

The financial model should be approved with consistent assumptions about revenue, capital cost, debt service and reserves. Debt service coverage ratio and minimum projected liquidity should meet the facility's agreed tests. A base case calculated using an expired tariff or unsupported offtake volume is not reliable. The lender should test downside scenarios and make sure the model matches the executed documents.

Insurance and takaful

Required construction all-risk, third-party liability, marine cargo, delay-in-start-up or other cover should be in force to the extent applicable. Policies should name insured parties and loss payees consistently with financing. An insurance quotation is not the same as issued effective cover. The bank should review exclusions, deductibles and project-specific risks. A construction facility should not disburse against uninsured equipment merely because a policy is being negotiated.

Material adverse change and warranties

The borrower may need to repeat representations that there is no specified material adverse event or default at utilisation. These warranties should have clear contractual content. Lenders should not use vague dissatisfaction to reject funding despite all conditions being met. Borrowers must disclose material changes in permits, contracts or litigation rather than simply re-sign an old certificate. The CP certificate should identify what has actually been checked.

Environmental and social requirements

Environmental impact assessments, permits, resettlement plans and lender environmental standards may be important, particularly for infrastructure. The bank should assess applicable Pakistani law and any contractual lender standard. A project can suffer legal interruption if construction starts before mandatory approval. The conditions should distinguish required government consent from voluntary good practice and record completion of material safeguards.

Accounts and cash control

A project may require collection, disbursement, reserve and debt-service accounts before funds are released. Verify the account mandates, security and operation of the payment waterfall. A lender should not disburse into an unrestricted account contrary to agreed controls. At the same time, account requirements must be operationally feasible for contractors and suppliers. Bank operations staff should test the process rather than rely only on document descriptions.

Waiver versus deferral

The bank may waive a discretionary condition or defer a limited item where the agreement allows it. Such action should be documented by authorised lenders, not inferred from silence. Mandatory regulatory requirements cannot ordinarily be waived by private contract. A deferred CP should have a clear deadline, covenant and consequences of noncompletion. The parties should avoid calling a material licence "post-closing" without confirming whether work can legally commence.

First utilisation mechanics

The borrower should submit the utilisation notice in the agreed form and period, supported by invoices, budget allocations and necessary drawdown certificates. Check availability period, minimum draw amount and permitted use. A project finance facility cannot necessarily be drawn for unrelated shareholder distributions. The bank should ensure first funds reach authorised project expenditures through agreed accounts.

Example: electric bus fleet

A project SPV seeks first drawdown to purchase electric buses for a provincial transport scheme. The bank should verify the signed service concession, vehicle supply contract, depot rights, regulatory permissions, sponsor equity and insurance. A government launch announcement is not a substitute for executed revenue commitments. The financing model must address charging infrastructure, maintenance and payment delays.

Opinion and recommended course

First disbursement should follow documented satisfaction of legal, technical, financial and regulatory conditions, with lawful waivers only where appropriate. Maintain a signed CP checklist, independent opinions, verified security and operational cash controls. The lender's goal is not to collect documents but to fund a project capable of lawful completion and repayment.

Principal authorities: Contract Act, 1872; Companies Act, 2017 and Companies Regulations, 2024; applicable project licensing and environmental law; State Bank prudential directions; executed facility, intercreditor and project documents.