Project financing involves a corporate sponsor investing in and owning a single purpose asset through a legally independent entity financed through non-recourse debt. It is used for large infrastructure projects due to risk minimization and raising sufficient funds. Key features include being ring-fenced with high debt-to-equity ratios and no sponsor guarantees. Advantages are reducing sponsor risk and leverage while obtaining better rates, while disadvantages include higher costs and restricted decision making due to extensive contracting. Common project types include roads, airports, bridges, and water supply.

1. PROJECT FINANCE

2. Presented by…

3. It’s All About Risk!The key to project financing is the reallocation of any risk away from the lenders to the project.

4. WHAT IS PROJECT FINANCE ?

5. Project Finance involves a corporate sponsor investing in and owning a single purpose, industrial asset through a legally independent entity financed with non-recourse debt.

6. The financing of long-term infrastructure, industrial projects and public services.project financing is a loan structure.attractive to the private sector.

7. WHY PROJECT FINANCE?

8. Size and cost of projectsRisk minimizationMay be only way that enough funds can be raised

9. FEATURE

10. It is provided for a “ring-fenced” projectThere is a high ratio of debt to equityThere are no guaranteesLenders rely on the future cash flow The main security for lenders

11. ADVANTAGES

12. Project financing is usually chosen by project developers in order to inter alia: Eliminate or reduce the lender’s recourse to the sponsorsPermit an off-balance sheet treatment of the debt financingMaximize the leverage of a projectReduce political risks affecting a project

13. Circumvent any restrictions or covenants binding the sponsors under their respective financial obligationsAvoid any negative impact of a project on the credit standing of the sponsorsObtain better financial conditions when the credit risk of the project is better than the credit standing of the sponsors

14. DISADVANTAGES

15. Often takes longer to structure than equivalent size corporate finance.Higher transaction costs due to creation of an independent entity can be up to 60bpProject debt is substantially more expensive (50-400 basis points) due to its non-recourse nature.Extensive contracting restricts managerial decision making.Project finance requires greater disclosure of proprietary information and strategic deals.

16. TYPES

18. PARTICIPANTS

19. Government Equity FundersNonrecourse Debt FundersOperatorConstruction/Engineering ConsultantsAffected Communities

20. Developmental projects

21. ROAD:L&T Transportation Infrastructure Limited(L&T-TIL) construction of a 28km bypass roadBypass commenced in Dec.1998 and Jan.2000 respectively

22. AIRPORT:Bangalore International Airport Limited (BIAL)project covers construction of a 4000m runwayexpected traffic demand of 4.1 million passengers per yearinvestment will be US$240 million (Rs.1240 crores).

23. BRIDGE :Narmada Infrastructure Construction Enterprise Limited (NICE)The construction of a 1.4km-long bridge adjacent to the first bridge & 4.6km of approach roadsService began in nov. 2000

24. TRADE & EXHIBITION CENTRE:Hyderabad International Trade Expositions Limited (HITEX)developed on a 100-acre ploteight air cooled halls of 3500 Sqm each of indooran open exhibition space (32,825 Sqm) conference rooms of a total area of 4553 Sqm

25. WATER SUPPLY PROJECTSVizag Industrial Water Supply Company Limited (VIWSCO)Pipeline works from Rajahmundry to YLBC 56 kmConcession period for the project is 32 years