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217 Pranav Gheewala
218 Dhiraj Hegde
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238 Lalit Mishra
256 Ashish Poojary
260 Soujanya Rao
275 Shruti Thavara
283 Akash Yagnik
Project Finance funding
Why is it important to understand project
finance?
The people involved in a project are used to find financing deal for major construction projects
such as mining, transportation and public utility industries, that may result such risks and
compensation for repayment of loan, insurance and assets in process.
That’s why they need to learn about project finance in order to manage project cash flow for
ensuring profits so it can be distributed among multiple parties, such as investors, lenders and
other parties.
For whom is it important to understand
project finance?
Financial managers
Sponsors
Lenders
Consultants and practitioners
Project managers
Builders
Suppliers
Engineers.
Researchers
Students.
What is a Project?
A Project is normally a long-term infrastructure, industrial or public services scheme,
development or undertaking having:
large size.
Intensive capital requirement – Capital Intensive.
finite and long Life.
few diversification opportunities i.e. assets specific.
Stand alone entity.
high operating margins.
Significant free cash flows.
Such projects are usually government regulated and monitored which are allowed to an entity
on B.O.O or B.O.T basis.
Types of Project
Motorway and expressway.
Metro, subway and other mass transit systems.
Dams.
Railway network and service – both passenger and cargo.
Power plants and other charged utilities.
Port and terminals.
Airports and terminals.
Mines and natural resource explorations.
Large new industrial undertakings – [no expansion and extensions.
Large residential and commercial buildings.
Key characteristics of Project Financing.
The key characteristics of project financing are:
Financing of long term infrastructure and/or industrial projects using debt and equity.
Debt is typically repaid using cash flows generated from the operations of the project.
Equity arrangement
Negotiation and syndication Financing Stage
Commitments and documentation
Disbursement.
Identificationof market
Product of the project
Users of the product
Marketability of the product
Marketing Plan
Stages in Project Financing – Risk
Identification and Minimizing.
Risk Solution
Completion Risk Contractual guarantees from contractors,
manufacturer, selecting vendors of repute.
Price Risk hedging
Resource Risk Keeping adequate cushion in assessment.
Operating Risk Making provisions, insurance.
Environmental Risk Insurance
Technology Risk Expert evaluation and retention accounts.
Interest Rate Risk Swaps and Hedging
Insolvency Risk Credit Strength of Sponsor, Competence of
management, good corporate governance
Stages in Project Financing – Risk
Identification and Minimizing.
Currency Risk Hedging
Political and • Externalizing the project company by forming
Sovereign Risk it abroad or using external law or jurisdiction
• External accounts for proceeds
• Political risk insurance (Expensive)
• Export Credit Guarantees
• Contractual sharing of political risk between
lenders and external project sponsors
• Government or regulatory undertaking to
cover policies on taxes, royalties, prices,
monopolies, etc
• External guarantees or quasi guarantees
Stages in Project Financing – Technical and
Financial Feasibility.
Technical feasibility
Location
Design
Equipment
Operations / Processes.
Financial feasibility
Business plan / model
Projected financial statements with assumptions
Financing structure
Pay-back, IRR, NPV etc
Stages in Project Financing – Equity
arrangement.
Sponsors
Lead sponsors
Co – sponsors
Syndication
Lead arranger.
Co-arrangers.
Negotiation
Pricing.
Documentation.
Disbursement.
Stages in Project Financing – Negotiation and
syndication.
Lenders
Banks.
Non- banking financial institutions.
International lending institutions.
Syndication
Lead arranger.
Co-arrangers.
Negotiation
Pricing.
Documentation.
Disbursement.
Stages in Project Financing – Documentation.
Commitment letters / MOUs
Commitment letters from sponsors and investors
MOU signing with financiers.
Documents
Offer Letters
Lending agreements
Security documents
Disbursement plan
Contracts
Management/shareholder agency relationship
Inter corporate agency relationship
Government/corporate agency relationship
Bondholder stockholder relationship
Stages in Project Financing – Disbursement.
Equity Disbursement
Shares application.
Shares proceeds.
Share certificates.
Loan Disbursement
Sponsor loans
Advance payments
Progress Payment
Stages in Project Financing – Documentation.
Commitment letters / MOUs
Commitment letters from sponsors and investors
MOU signing with financiers.
Documents
Offer Letters
Lending agreements
Security documents
Disbursement plan
Contracts
Management/shareholder agency relationship
Inter corporate agency relationship
Government/corporate agency relationship
Bondholder stockholder relationship
Conclusion – A Typical Project Finance
Structure.
Thank you