Introduction to Project Finance. Project Appraisal, Financing and Management

What is a Project?

High operating margins.
Low to medium return on capital.
Limited

What is a Project? (cont.)

Projects have unique risks:
Symmetric risks:
Demand, price.
Input/supply.
Currency,

What Does a Project Need?

Customized capital structure
Asset specific governance systems
to minimize

“Project finance” is not the same thing as “financing projects”.

What is Project Finance?

Project Finance involves a corporate sponsor investing in

Project Structure

Structure highlights
Disadvantages
Motivations

Structure Highlights

SPV - Independent, single purpose company formed to build and

Structure Highlights (cont.)

Highly concentrated equity and debt ownership
One to three equity

Disadvantages of Project Financing

Often takes longer to structure than equivalent size

Type of Projects

BOT - Build Operate Transfer
BOOT - Build Own Operate

Means of Finance

Equity Capital
Mezzanine Finance
Convertibles
Preference Capital
Sub-ordinated Debt
Senior Debt
Rupee Term Loan
Bonds
Foreign Currency

Financing Infrastructure Projects

Deal Diagram

Government

Project SPV

Key Components

Cash flow projections based on technical, market and financial analysis
Risk

Base case analysis shows adequate debt servicing capacity of the enterprise.

Why Investors Use Project Finance

High leverage
Tax benefits
Off-balance sheet financing
Borrowing capacity
Risk limitation
Risk

Benefits of Project Finance to Third Parties

Lower product or service cost
Additional

Case Study - 1

Project : 4-laning of 59 km on NH5

Case Study - 2

Project SPV

NHAI

Lenders

UEM

UEM

GMR Group

Dorsch Engineers

Scott Wilson

Debt

Financing Agreements

Equity

EPC

INFRASTRUCTURE

Transport – road including toll road, a bridge, rail system, a