Project Finance is the financing of projects that depend on project cash flows as repayment.
There is no standard project finance that applies to all; each transaction is unique. Project finance structures differ between various industry sectors and from transaction to transaction.
Benefits of Project Finance for the Investors / Sponsors
- Better returns
- Off-balance sheet financing
- Longer term financing
- Risk sharing through joint venture
- Increased borrowing capacity
Benefits of Project Finance for Third Parties
- Additional investment in public infrastructure
- Risk Transfer
- Lower project cost
- Third party due diligence
- Transparency
- Technology transfer
Who are qualified for Project Finance?
Appropriate project finance candidates include greenfield projects and significant facility or production expansions.
Typical projects that we have successfully funded include independent power generation facilities, natural resources projects such as mining, oil and gas, public infrastructure including toll-road systems, airports, shipping ports, railway systems, among others.
Project Criteria
- The project should have long-term contracts from creditworthy entities for the purchase of the project's output and the purchase of the project's major project inputs such as fuel, raw materials, and operations and maintenance.
- The project should have an appropriate allocation of risk to the parties best suited to manage those risks. Sensitivity analysis should result in a sufficient debt service coverage ratio to ensure regular debt servicing for the term of the debt.
- Total project cost should be comparable to projects of similar type and size for a particular market.
- Pricing and costs should reflect market based pricing.
General Requirements
- Feasibility study and/or a detailed information memorandum, prepared by a qualified party. The study should include the project description, location, legal status, ownership, and background and status of key elements of the project structure, such as agreements, licenses, local partner participation and financing.
- All contracts necessary for the project to be built and operated.
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A breakdown of anticipated project costs through commissioning, including interest during construction and working capital requirements, by major cost category and country of origin. These include:
- Any "soft costs" such as development costs, development fees, owner's contingencies and other similar items.
- Proposed coverage for interest during construction and the method of calculation
- A summary of the anticipated project financing plan and security package, including the proposed source, amount, currency and terms of the debt and equity investments; the sources of finance in the event of project cost overruns; and description of escrow accounts.
- Information on the terms, security requirements, and status of financing commitments of other lenders to the project, if applicable, should be provided. All other sources approached for financing must be disclosed.
- Projected annual financial statements, including a sensitivity analysis for not only the expected scenario, but pessimistic and optimistic cases as well.
- Assumptions for the financial projections
- Market information to include ten years of historical price and volume data; present and projected capacity of industry; product demand forecast with assumptions; description of competition and projected market share of the project as compared to the shares of the competition; identity and location of customers; and marketing and distribution strategy.
- A descripton of the principal risks and benefits of the project to the sponsors, lenders, and host government.
- A description of the types of insurance coverage to be purchased for both the pre-completion and post-completion phases of the project.
- Information on infrastructure required for the project to operate, specifically information pertaining to the timing, status and developmental plans.
