The recent paradigm shift in financing capital intensive projects by private and public entities from traditional corporate finance schemes with project finance schemes has witnessed massive surge in the corporate world. However, a number of such projects are either plunged into financial distress at preliminary phases or operational phases. To address this issue, this paper examined the general overview of financially distressed project by reviewing adequate literature regarding project finance and financial distress, outlining the major signs of financial distress associated with projects and recommend suitable solution to projects engulfed in financial distress. To achieve this goal, capital structural reforms in the area of increasing equity capital requirement is advisable in view of the existing arrangement which allows equity investment of 10% to 20% in most cases. Ascertaining optimal capital structure that would enable the avoidance of finance distress requires further research.
Keywords: Financial distress, Project finance, Equity, Optimal structure, Reforms.