project finance - non pdf

8/10/2019 Project Finance - Non PDF

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PROJECT FINANCING(Elective Curriculum Course Syllabus)

Viey Sa!"ey

#$# %eaco StreetSuite & '%osto A *#++,P"oe- ,+. /*' *'/0Fa1- ,+. $#$ ,..,Email- sa!"[email protected]

Introduction

Pro2ect Fiaci3 is a ui4ue 5iaci3 tec"i4ue t"at "as bee use6 o may "i3"78ro5ile cor8orate8ro2ects iclu6i3 Euro 9iseyla6 a6 t"e Euro Tuel: Em8loyi3 a care5ully e3ieere6 5iaci3mi1 it "as lo3 bee use6 to 5u6 lar3e7scale atural resource 8ro2ects 5rom 8i8elies a6 re5ieries to

electric73eerati3 5acilities a6 "y6roelectric 8ro2ects: Icreasi3ly 8ro2ect 5iaci3 is emer3i3 as t"e8re5erre6 alterative to covetioal met"o6s o5 5iaci3 i5rastructure a6 ot"er lar3e7scale 8ro2ects!orl6!i6e:

Pro2ect Fiaci3 6isci8lie iclu6es u6ersta6i3 t"e ratioale 5or 8ro2ect 5iaci3 "o! to 8re8are t"e5iacial 8la assess t"e ris;s 6esi3 t"e 5iaci3 mi1 a6 raise t"e 5u6s: I a66itio oe mustu6ersta6 t"e co3et aalyses o5 !"y some 8ro2ect 5iaci3 8las "ave succee6e6 !"ile ot"ers "ave5aile6: A ;o!le63e7base is re4uire6 re3ar6i3 t"e 6esi3 o5 cotractual arra3emets to su88ort 8ro2ect5iaci3< issues 5or t"e "ost 3overmet le3islative 8rovisios 8ublic=8rivate i5rastructure 8arters"i8s8ublic=8rivate 5iaci3 structures< cre6it re4uiremets o5 le6ers a6 "o! to 6etermie t"e 8ro2ect>sborro!i3 ca8acity< "o! to 8re8are cas" 5lo! 8ro2ectios a6 use t"em to measure e18ecte6 rates o5retur< ta1 a6 accouti3 cosi6eratios< a6 aalytical tec"i4ues to vali6ate t"e 8ro2ect>s 5easibility:

Course objectives

T"e mai ob2ective o5 t"e course is to 8rovi6e stu6ets !it" t"e ecessary t"eoretical a6 coce8tual tools5or 5iacial aalyses a6 6ecisio7ma;i3 i relatio to Pro2ect Fiace: T"e elective is 6esi3e6 5orstu6ets 8ursui3 careers i t"e cor8orate sector i treasury cor8orate 5iace or busiess 6evelo8met5uctios t"ose i ivestmet ba;i3 cosulti3 or e3ieeri3 a6 t"ose ivolve6 i 6ebt or e4uityivestmet 6ecisios: It is 8articularly a88ro8riate 5or stu6ets !it" a iterest i me6ium to lar3e7scaleivestmets or 8ro2ects: T"e course is es8ecially a88ro8riate 5or stu6ets !it" a iterest i eit"eremer3i3 mar;ets or structure6 5iace: T"e course 8rovi6es a soli6 3rou6i3 i t"e tec"i4ues o5Pro2ect Fiace a6 t"e ;ey issues i its 8ractice by 8rovi6i3 a balace6 mi1 bet!ee tec"ical rea6i3sa6 s8eciali?e6 case stu6ies: Stro3 em8"asis is 8lace6 i coveri3 im8ortat le3al 6ocumetatio issues

a6 i 8rovi6i3 stu6ets !it" t"e o88ortuity to u6erta;e 8ro2ect evaluatio: T"e course syllabus !ill5ocus o stu6yi3 "o! le6ers evaluate cre6it rati3s i 8ro2ect75iace6 trasactios a6 buil6 alterate5iaci3 structures iclu6i3 bri63e loas costructio a6 8ort5olio 5iaci3:


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T"e 8ro3ram cotet !ill evaluate several e! alterative met"o6s o5 5iaci3 lar3e e3ieeri38ro2ects iclu6i3 merc"at 8o!er 5iaci3s a6 ac4uisitio=6ivestiture o5 trouble6 8ro2ects: Sessios!ill 5ocus o u6ersta6i3 ma2or bottleec;s t"at ca 2eo8ar6i?e 5iacial closi3s a6 6evelo8i3 s;illsto tac;le cultural barriers bet!ee 6evelo8ers a6 le6ers: Em8"asis !ill be o 8rovi6i3 a overvie! o5various a88roac"es available to 4uati5yi3 ris; 5actors a6 i6eti5yi3 cre6it c"alle3es:

Main Topics

+) Fu6ametals a6 Ratioale o5 Pro2ect Fiaci3 #) Aalysis o5 Pro2ect Viability a6 Ris;aa3emet /) Security Arra3emets a6 @e3al Structure $) Role o5 Cre6it Rati3s a6 Pro2ectEvaluatio 0) O!ers"i8 a6 Fiacial Structuri3 ,) @e3al 9ocumetatio a6 Fu6i3 Sources

Course Evaluation

T"e 3ra6i3 o5 t"e course !ill be base6 o t"e 5ollo!i3 !ei3"ti3 sc"eme-

Class Partici8atio- /0 i67term Grou8 Presetatio- /* Fial Grou8 Case Brite78 a6Presetatio- /0

T"e course !ill be tau3"t i t"e 5orm o5 lectures to3et"er !it" case stu6ies ite6e6 to be 6iscusse6i class: Eac" stu6et !ill be 8art o5 a stu6y 3rou8 ma6e u8 o5 at least t"ree members: Bei3"ti3 5or

class 8artici8atio !ill be 6erive6 5rom i6ivi6ual assi3mets a6 class 6iscussio o case stu6ies:Assi3mets (ma1imum le3t" D oe 8a3e) must be "a6e6 over to t"e Teac"i3 Assistat at t"ebe3ii3 o5 eac" sessio:

Teaching Method

T"is course !ill "ave a umber o5 6i55eret 6imesios iclu6i3-

@ectures Case Aalysis Guest s8ea;ers 5rom i6ustry a6 aca6emia Grou8 Presetatios

Course Textbook

Fierty Jo" 9: Pro2ect Fiace- Asset7%ase6 Fiacial E3ieeri3 Jo" Biley Sos (Ne! or;N +HH,)


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SCHEDULE

Session ! THE "U#D$ME#T$LS %" &'%(ECT "I#$#CE

Project Financing entails careful financial engineering to achieve a mutually acceptable allocation of the

risks and rewards among the various parties involved in a project.

'e)uired 'eading!

Fierty Jo" 9: Pro2ect Fiace- Asset7%ase6 Fiacial E3ieeri3 Jo" Biley Sos (Ne! or;N +HH,) C": +

o55ma Scott @: T"e @a! %usiess o5 Iteratioal Pro2ect Fiace lu!er @a! Iteratioal+HH' C": +

%ptional 'eading!

9avis ery A: Ko! Ero as A55ecte6 Pro2ect FiaceL The Journal of Structured andCorporate Finance S8ri3 #**#

Individual $ssign*ent!

+: o! Pro2ect Fiace allo!s s8osors to use ris; allocatio cotracts 5or collateralM

#: To6ays 8ro2ect a6 o557balace s"eet 5iace mar;et i t"e a5termat" o5 t"e Ero colla8se !"ere isit "ea6e6:

Case!

K A Overvie! o5 t"e Pro2ect Fiace ar;etL (%S Case & #** *#')

Session + !THE '$TI%#$LE "%' &'%(ECT "I#$#CI#,

Project Finance can be more costeffective than conventional direct financing when it permits a higherdegree of leverage and the increase in leverage produces ta! shield benefits" resulting in a lower overall

cost of capital for the project.

'e)uired 'eading!

Fierty Jo" 9: Pro2ect Fiace- Asset7%ase6 Fiacial E3ieeri3 Jo" Biley Sos (Ne! or;

N +HH,) C": #Individual $ssign*ent!

+: S"oul6 t"e 5irm u6erta;e t"e 8ro2ect as 8art o5 its overall asset 8ort5olio a6 5iace t"e 8ro2ect o its3eeral cre6it or s"oul6 it 5orm a se8arate le3al etity to u6erta;e t"e 8ro2ectM

#: o! s"oul6 t"e 6ebt cotract be structure6M S"oul6 t"e le6ers be 8ermitte6 to "ave ay recourse to8ro2ect s8osorsM

Case!

KCal8ie Cor8oratio- T"e Evolutio 5rom Pro2ect to Cor8orate FiaceL #**+ %S Case &H7#*+7*H':9escribes Cal8ie>s "i3"73ro!t" strate3y a6 attem8ts to 5iace ivestmeti e! 8o!er 8lats


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Session -! $#$L.SIS %" &'%(ECT /I$0ILIT.

# critical aspect of analysis of project viability for a large project involves identifying all significant

project risks and then crafting contractual arrangements to allocate those risks at the lowest ultimate cost

to the project.

'e)uired 'eading!

Fierty Jo" 9: Pro2ect Fiace- Asset7%ase6 Fiacial E3ieeri3 Jo" Biley Sos (Ne! or;N +HH,) C": /

iller Ro3er a6 9oal6 R: @essar6 #*** T"e Strate3ic aa3emet o5 @ar3e E3ieeri3 Pro2ectsIT Press (Cambri63e A) C": /

%ptional 'eading!

Ri3by Peter KPro2ect Fiace Tec"ical Ris; CriteriaL Standard $ Poors" Project and %nfrastructureFinance &eview October +HHHNevitt Peter : a6 Fra; J: Fabo??i #*** Pro2ect Fiaci3 (.t" e6itio) America E6ucatioalSystems (IS%N- +'00,$.H+0) C": + a6 #Individual $ssign*ent!

+: o! !ill le6ers miti3ate ris;s surrou6i3 a 8ro2ect 5iace situatio 6uri3 t"e costructio 8erio6M

#: 9oes "i3"er level o5 e4uity cotributio miti3ate ecoomic ris;s i a 8ro2ectM/: B"at 8rotectio ca be a55or6e6 to le6ers !"e a soverei3 state ree3es a cotractually vali6 o557ta;e

a3reemetCase!

K %P Amoco (A)- Policy Statemet o t"e se o5 Pro2ect FiaceL #**+ %S Case &H7#*+7*0$:9escribes t"e costs a6 bee5its o5 usi3 Pro2ect Fiace istea6 o5 iteral cor8orate 5u6s to 5iacee! ca8ital ivestmets:

Session 1! SECU'IT. $''$#,EME#TS

The security arrangements for a project are crafted to suit the economic characteristics of the project andthe riskreturn preferences of the various parties associated with the project.

'e)uired 'eading!

Fierty Jo" 9: Pro2ect Fiace- Asset7%ase6 Fiacial E3ieeri3 Jo" Biley Sos (Ne! or;N +HH,) C": $Individual $ssign*ent!

+: I certai situatios are sta6ar6 security arra3emets ot a6e4uate to miti3ate 8olitical ris;sM#: Cre6it!ort"iess o5 t"e cotracti3 8arties is ;ey to ac"ievi3 a viable security structure: B"at

8recautios s"oul6 le6ers ta;e i evaluati3 t"e e5orceability o5 t"e iterloc;i3 su88ort6ocumetatioM

Case!

K Fiaci3 t"e o?al Pro2ectL #*** %S Case& #**7**0< Aaly?es a +:$% alumium smelter i

o?ambi4ue:

Session 2! LE,$L ST'UCTU'E


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'egal structure can have important ta! implications and can also affect the availability of funds to a

project and increase the cost of project financing.

'e)uired 'eading!

Fierty Jo" 9: Pro2ect Fiace- Asset7%ase6 Fiacial E3ieeri3 Jo" Biley Sos (Ne! or;N +HH,) C": 0%ptional 'eading!

o55ma Scott @: T"e @a! %usiess o5 Iteratioal Pro2ect Fiace lu!er @a! Iteratioal+HH' C": 0 a6 #.

Nevitt Peter : a6 Fra; J: Fabo??i #*** Pro2ect Fiaci3 (.t" e6itio) America E6ucatioalSystems (IS%N- +'00,$.H+0) C": $Individual $ssign*ent!

+: A limite6 8arters"i8 structure is a commo 5orm o5 a s8ecial 8ur8ose ve"icle to o! a 8ro2ectME18lai t"e ratioale 5or t"is 8re5erre6 5orm o5 o!ers"i8M

+3 T"e c"oice o5 a 8ro2ects le3al structure is 3ermae to ac"ievi3 5iacial closi3: Is t"ere ay co5lictbet!ee o!ers a6 le6ers i c"oosi3 suc" a structureM E18lai:

Case!

K T"e C"a67Cameroo Petroleum 9evelo8met a6 Pi8elie Pro2ect (A%)L #**+ %S Cases &NH7#*#7

*+* a6 &NH7#*#7*+#: S"oul6 t"e Borl6 %a; Grou8 8artici8ate i t"is "i3" ris;="i3" retur $ billiooil75iel6 6evelo8met 8ro2ectM

Session 4 ! ST'UCTU'E $#D "I#$#CI#, %" 0UILD %5# 6 %&E'$TE 70%%8 &'%(ECTS

&ationale and (iscussion of ownership structure of projects including )**" )*T and )*'. (evising a

financial plan and sources of funding for project financing. The Cost of Privati+ation Transactions #re

They ,orth %t- &isks and Security in Privati+ation Transactions.

'e)uired 'eading!

o55ma Scott @: T"e @a! %usiess o5 Iteratioal Pro2ect Fiace lu!er @a! Iteratioal+HH' C": ,

%ptional 'eading!

Ferreira 9avi6 KFiaci3 Private I5rastructure i 9evelo8i3 CoutriesL Borl6 %a; 9iscussioPa8er No: /$, T"e Borl6 %a; (Bas"i3to 9:C: +HH,) 88: + /0 (s8ecial em8"asis o C": / 88:#* /0):

Case!

K Em8resas ICA a6 t"e e1ica Roa6 Privati?atio Pro3ramL +HH# %S Case &.H/7*#'< aaly?esoe com8ay>s role i t"e 8rivati?atio o5 e1ica toll roa6s i t"e early +HH*s:

Session 9! MID:TE'M $SSI,#ME#T $#D &'ESE#T$TI%#

Eac" stu6y 3rou8 s"all submit a 8a8er o a to8ic o5 mutual a3reemet relate6 to Pro2ect Fiace a88rove6

by t"e Pro5essor at least a !ee; i a6vace: T"e 6uratio o5 8resetatios i classroom s"all ot e1cee6#* miutes 8er 3rou8:

Session ; ! &'E&$'I#, THE "I#$#CI$L &L$#


6/8

%n preparing the projects financing plan" there is need to consider carefully all potential sources of funds

in order to determine the financing package that affords the lowest cost of capital consistent with

regulatory or any other projectspecific constraints.

'e)uired 'eading!

Fierty Jo" 9: Pro2ect Fiace- Asset7%ase6 Fiacial E3ieeri3 Jo" Biley Sos (Ne! or;

N +HH,) C": , a6 H%ptional 'eading!

o55ma Scott @: T"e @a! %usiess o5 Iteratioal Pro2ect Fiace lu!er @a! Iteratioal+HH' C": ' H a6 +*


+: I6eti5y t"e ;ey 8rici8al ob2ectives 5or 6esi3i3 t"e most viable 5iacial 8la t"at !oul6 meet t"ere4uiremets o5 le6ers o!ers a6 ot"er costituets i t"e trasactio c"ai:

#: 9e5ie t"e ;ey 5iacial ratios use6 by le6ers to 6etermie t"e acce8tability o5 a 5iacial 8la 5orobtaii3 Pro2ect Fiace:

Case! KIter3e a6 t"e Que?o Po!er Pro2ectL +HHH %S Case & .HH7*0.:

Session

incremental afterta! cash flows" estimating the cost of capital" and then using the /P0 method or the

%&& method to determine whether the project is worth more than it will cost.

'e)uired 'eading!

Fierty Jo" 9: Pro2ect Fiace- Asset7%ase6 Fiacial E3ieeri3 Jo" Biley Sos (Ne! or;N +HH,) C": .%ptional 'eading!

T"am Jose8" KRetur to E4uity i Pro2ect Fiace 5or I5rastructureL arvar6 Istitute 5or Iteratioal9evelo8met #***%realey R: a6 S: yers Prici8les o5 Cor8orate Fiace (. t" E6itio) cGra! ill (Ne! or; N#**/) C": # / 0 a6 ,Individual $ssign*ent!

+: 9escribe t"e Bei3"te6 Avera3e Cost o5 Ca8ital (BACC) coce8t a6 its relevace as t"e "ur6le rate 5ora 8ro2ect: Is BACC e18resse6 as a Ka5ter7ta1 rate o5 returM I5 yes !"yM E18lai !it" t"e "el8 o5 ae1am8le:

#: Preset values o5 cas" 5lo!s 5urt"er i t"e 5uture are more sesitive to t"e 6iscout rate: E18lai t"ecoce8t o5 cas" 5lo! timi3 6i55ereces !it" a e1am8le:

Case! KTe1as i3"7S8ee6 Rail Cor8:L +HH/ %S Case & #H/7*.#:

Session =! "I#$#CI$L M%DELI#, $#D &'%(ECT E/$LU$TI%#


7/8

# financial model of the project is useful in demonstrating the projects ability to service its debt

obligations and provide an acceptable rate of return to the projects e1uity investors.

'e)uired 'eading!

Fierty Jo" 9: Pro2ect Fiace- Asset7%ase6 Fiacial E3ieeri3 Jo" Biley Sos (Ne! or;N +HH,) C": '

Individual $ssign*ent!+: Sesitivity aalysis is a stress7testi3 6evice to ascertai t"e vali6ity o5 a 5iacial mo6el: B"at ty8e o5

ratio aalysis is relevat 5or t"is 8ur8oseM#: To evaluate a 8ro2ect s"oul6 5iacial 8ro2ectios be 8re8are6 o Kcostat 6ollarsL or Kcurret

6ollarsLM E18lai by 3ivi3 a e1am8le:Case!

K %P Amoco (%)- Fiaci3 9evelo8met o5 t"e Cas8ia Oil Fiel6sL #**+ %S Case &H7#*+7*,.:A88lyi3 t"e e! 8olicy statemet to t"e AIOC>s +*% oil 5iel6 6evelo8met 8ro2ect i A?erbai2a: Seealso t"e KNote o t"e Cas8ia Oil Pi8eliesL +HHH %S Case HH7*$$

Session ! THE '%LE %" C'EDIT '$TI#,S I# &'%(ECT "I#$#CE T'$#S$CTI%#S

Gro!t" a6 i5luece o5 rate6 8ro2ect 6ebt i6eti5yi3 cre6it c"alle3es a66ressi3 t"e ta1oomy o5ris;s a6 outloo; 5or 8ro2ect 6ebt i to6ays ca8ital mar;ets:

'e)uired 'eading!

9ell Jo" C: et al KRati3 A88roac" to Pro2ect FiaceLFitch %)C#(uff $ PhelpsProject FinanceSpecial &eport" A8ril #**+Ri3by Peter KPro2ect Fiace Summary 9ebt Rati3 CriteriaL Standard $ Poors" Project and%nfrastructure Finance &eview October #**#%ptional 'eading!

%eale C"ris et al KCre6it Attributes o5 Pro2ect FiaceL The Journal of Structured and Project FinanceFall #**#El 9a"er Samir KCre6it Rati3s A Itro6uctio (a6 t"e Case o5 Sub7soverei3 Rati3s)L

%nfrastructure /otes 2Transport" ,ater and 3rban (evelopment4 T"e Borl6 %a; July +HHHCase!

KPetrolera uata Petro?uata C:A:L +HHH %S Case & #HH7*+#: 9escribes a #:$% oil75iel66evelo8met 8ro2ect i Vee?uela:

Session +! "I#$#CI#, $#D DE/EL%&I#, ME'CH$#T &%5E'

The role of 5erchant Power in a restructured 3.S. 3tility 5arket. #naly+ing the 6conomics and

Commercial viability of developing a 5erchant Power plant. Successfully structuring 5erchant Power

financing. (oes 5erchant Power really work- 6!perience from the 3nited 7ingdom.

'e)uired 'eading!

riebel eit" B: a6 ic"ael 9: orstei KFiaci3 erc"at Po!er Plats i t"e ite6StatesL @a!Commerce:com (!!!:la!commerce:com=e!sletters=artOSsec*0#,**:as8) ay#***

Case!

K Cotractual Iovatio i t"e Eer3y ar;ets- Ero Euro8e T"e Easter Grou8 a6 t"eSutto %ri63e Pro2ectL (%S case & #*+ 7 *0+)


8/8

Session -! &'%(ECT D%CUME#TS

#n overview of (ocumentation" Credit #greements" 8ost Country #greements" Construction #greements"

and %nput Contracts. *peration $ 5aintenance #greements" *fftake Sales Contracts" Power Sales

#greements" and Credit 6nhancement.

'e)uired 'eading!

o55ma Scott @: T"e @a! %usiess o5 Iteratioal Pro2ect Fiace lu!er @a! Iteratioal+HH' C": +# #*


+: KForce a2eure ClausesL i 5iacial a6 su88lier cre6it relate6 6ocumetatio 5or Ero resulte6i a Kvirtual ru o t"e com8ayL causi3 t"e 6emise o5 t"e Cor8oratio i 2ust a 5e! 6ays: 9oyou t"i; t"ere is ee6 to revie! le3islatio to 8revet recurrece o5 similar evets i t"e 5utureM

#: KTa;e7or7PayL clauses i Po!er Sales Cotracts caot al!ays be e5orce6 i Courts o5 @a!:Su33est !ays a6 meas 5or 8rotectio a3aist suc" a evet:

Session 1! "I#$#CI#, S%U'CES I#CLUDI#, MULTIL$TE'$L I#STITUTI%#S>

E?&%'T C'EDIT $,E#CIES 6 &%LITIC$L 'IS@ M$#$,EME#T

*ffering 5emoranda" (ebt Commitment 'etters" Credit and &elated (ocumentation for ProjectFinance Transactions and Project Collateral.

'e)uired 'eading!

o55ma Scott @: T"e @a! %usiess o5 Iteratioal Pro2ect Fiace lu!er @a! Iteratioal+HH' C": #+ #,

%ptional 'eading!%eoit P"ili88e Pro2ect Fiace at t"e Borl6 %a; Borl6 %a; Tec"icalPa8er Number /+# +HH, 88: ./ .' (ultilateral Ivestmet Guaratee A3ecy IGA)


+: Ris; o5 6evaluatio o5 ost Coutrys currecy ee6s to be miti3ate6 by obtaii3 e1c"a3e rate8rotectio 3uaratees via reveues 6eomiate6 i "ar6 currecy a6 reveue a62ustmet

5ormulas: T"is mec"aism results i e"ace6 5iacial bur6e o t"e 8ro2ect: Ca you su33estalterativesM

#: Ca K6evelo8met 5eesL c"ar3e6 to t"e 8ro2ect by s8osors be cosi6ere6 as e4uivalet o5 Kcas"e4uityL by E18ort Cre6it A3ecies 7ECAs7 (!"ile calculati3 s8osors e4uity)M Commet:

Session 2! ,'%U& C$SE 5'ITE:U& $#D "I#$L &'ESE#T$TI%#

Study groups research would require analysis of a particular projects risk, nancing

structure, project documents, nancing sources for project including multilateral

institutions, oering memoranda, debt commitment letters, and project collateral.Time permitted for each group presentation is restricted to ! minutes. The cases

will be distributed two weeks in ad"ance.

project finance - non pdf

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