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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$240 million (Rs.1240 crores). 3) BRIDGE : Narmada Infrastructure Construction Enterprise Limited (NICE) The construction of a 1.4km-long bridge adjacent to the first bridge & 4.6km of approach roads Service began in nov. 2000 4) TRADE & EXHIBITION CENTRE: Hyderabad International Trade Expositions Limited (HITEX) developed on a 100-acre plot eight air cooled halls of 3500 Sqm each of indoor an open exhibition space (32,825 Sqm) conference rooms of a total area of 4553 Sqm 5) WATER SUPPLY PROJECTS Vizag Industrial Water Supply Company Limited (VIWSCO) Pipeline works from Rajahmundry to YLBC 56 km Concession period for the project is 32 years [...]... International Airport Limited (BIAL) project covers construction of a 40 00m runway expected traffic demand of 4. 1 million passengers per year investment will be US$ 240 million (Rs.1 240 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:... 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)... 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 -40 0 basis...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... eight air cooled halls of 3500 Sqm each of indoor an open exhibition space (32,825 Sqm) conference rooms of a total area of 45 53 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 ... 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. .. 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... be up to 60bp Project debt is substantially more expensive (5 0-40 0 basis points) due to its non-recourse nature Extensive contracting restricts managerial decision making Project finance requires