Project finance 4

PROJECT FINANCE


Presented by…

M-4105
APEKSHA

M-4131
JUHI

M-4123
SONALI

M-4135
PALVI


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


WHAT IS
PROJECT
FINANCE ?

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.


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


WHY PROJECT
FINANCE?


Size and cost of projects
Risk minimization
May be only way that enough funds can
be raised


FEATURE


It is provided for a “ring-fenced” project
There is a high ratio of debt to equity
There are no guarantees
Lenders rely on the future cash flow

The main security for lenders


ADVANTAGES


Project financing is usually chosen by project
developers in order to inter alia:
Eliminate or reduce the lender’s recourse to the
sponsors
Permit an off-balance sheet treatment of the debt
financing
Maximize the leverage of a project
Reduce political risks affecting a project


Circumvent any restrictions or covenants binding the
sponsors under their respective financial obligations
Avoid any negative impact of a project on the credit
standing of the sponsors
Obtain better financial conditions when the credit risk
of the project is better than the credit standing of the
sponsors


DISADVANTAGES


Often takes longer to structure than equivalent size
corporate finance.

Higher transaction costs due to creation of an
independent entity can be up to 60bp
Project 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.


TYPES


PUBLIC FINANCE
CORPORATE FINANCE
LIMITED-RESOURCES


PARTICIPANTS


Government
Equity Funders
Nonrecourse Debt Funders
Operator
Construction/Engineering Consultants
Affected Communities


Developmental

projects


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


2) AIRPORT:
Bangalore International Airport Limited
(BIAL)
project covers construction of a 4000m runway
expected traffic demand of 4.1 million passengers per year
investment will be US$240 million (Rs.1240 crores).


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


4) TRADE & EXHIBITION CENTRE:
Hyderabad International Trade Expositions
Limited (HITEX)

developed on a 100-acre plot
eight air cooled halls of 3500 Sqm each of indoor
an open exhibition space (32,825 Sqm)
conference rooms of a total area of 4553 Sqm


5) WATER SUPPLY PROJECTS
Vizag Industrial Water Supply Company
Limited (VIWSCO)
Pipeline works from Rajahmundry to YLBC 56 km
Concession period for the project is 32 years