predstavitev graham cheshire

7/24/2019 Predstavitev Graham Cheshire

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Ljubljana, 24 11 2010

Project Finance: an overview

Graham Cheshire


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Review PPP/PPI

Definition of Project Finance and comparisonto conventional finance

What t e of develo ments are suited to

Project Finance: Ljubljana 24 11 2010 2

Project Finance techniques?

Who are the involved parties?


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Popular terms in Project Finance

What are they ?

Public Private Partnership Private Finance Initiative

PPP / PFI


and PPPs

The private sector has more

incentive to work efficiently


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Private sector companies design, finance, build,

and operate public sector projects

Often referred to as BOT(Build Operate Transfer)

Private Finance Initiative


, ,


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European Central and regional governments, in the

wake of the financial crisis, lack the funds to finance

large scale capital investments

National Budget Savings



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Conflict of interest

The private sector is an attractive alternative to

public sector finance

However, the necessity for the private sector togenerate profits and the public sector to provide

low cost infrastructure, can lead to conflicts of


interest


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Review PPP/PPI

Definition of Project Finance and comparisonto conventional finance



Project Finance techniques?

Who are the involved parties?


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Project Finance involves the pure application of

basic principles of finance and credit Managing risk and return for all parties

Each deal is uni ue but follows the same rinci les

Project Finance



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A Definition of Project Finance

The financing of an economicunit in which the lender issatisfied to consider the

cashflow and earnings of thateconomic unit as the sourcefrom which the loan will be


The assets of the economicunit will provide the collateralfor the loan

The credit quality of thesponsor is not especiallyimportant


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Lets drill deeper .

Project Finance operations have common

features

Funding a new economic unit

Via a Special Purpose Vehicle company


Several sponsors


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Project cashflows service debt

Project Assets act as collateral

Non-recourse credit support

Project viability and sensitivity to risks are critical


Financiers expect high margins to reward their

long maturity exposures

Public projects are subject to rigorousprocurement procedures


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Funding Sources

Trade finance, export credits, IFIs,

development finance, commercial

debt, leasing mechanisms, bonds,

mezzanine finance, subordinated


The World Bank


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Conventional Bank Loans

The bank expects a company acquiring an asset to

be entirely responsible for the loan repayment

regardless of the success or failure of the acquiredasset


Working capital, new equipment,

inventory financing


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Project finance, compared to

traditional bank lending

Has a reduced

dependance on thepast

Is more concerned


about the future


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Conventional loans



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Project Finance

a typical scheme ..



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The Flexibility of Project Finance

Each individual risk can be identified and allocated

either partially or wholly The project file takes on a unique profile



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Risk Allocation

If risks are compartmentalised, dealt with

individually and covered individually, then

the chance of one project partys failure

bringing the whole project down is greatly

reduced



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Indirect support is provided to financiers by

other parties through several types of

contractual obligations

Risk sharing

Equipment supply

Su l contracts


Off-take contracts

Operating and maintenance

agreements

Special operating agreements


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A Common Terms Agreement


Embodies all documentation by lenders in one common

agreement

Conditions of disbursement, covenants, warranties, events

of default, off-take and supplier agreements, etc


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Why SPVs or PUCs?

Isolates project from risk of sponsors failure!

Sponsors not subject to local regulations on

business operations

The project company is managed by a board of


venture members independant

Limitation of political risk


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Market Influences

Each project will be subject to market risks,

supply and demand, economic cycles, political

events



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Review PPP/PPI

Definition of Project Finance and comparison

to conventional finance



Project Finance techniques? Who are the involved parties?


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Where to apply Project Finance

techniques Energy Plants gas, oil, windpower, hydro-electric power, coal, lignite powered

generators Energy supply oil and gas, refineries,

pipelines, liquid gas transportation


Telecommunications


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Toxic waste, waste disposal, waste to energy

(bio gas)

Chemical and petro-chemical processing Tunnels, bridges, motorways, toll-roads


Minerals


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Entertainment and

lesiure com lexes


Railways, Metros

Schools, prisons,

hospitals, university

facilities


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Review PPP/PPI

Definition of Project Finance and comparison

to conventional finance



Project Finance techniques? Who are the involved parties?

Whi h P ti G t I l d i


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Which Parties Get Involved in

Project Finance ?

The project company usually a single

purpose vehicle

Project sponsors - may be one company or aconsortium of interest parties


company !

Financiers and guarantors can be

international syndicate


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Involved Parties .

The arranger

The Manager Banks

Agent bank The engineering bank


Guarantor Bank

LT funding provider


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Parties .

The Financial Advisor / National Center of Expertise

Technical Experts

Lawyers essential, numerous

Insurers essential role


The host Government International agencies


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Key Concern for Bankers


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