INFRASTRUCTURE PROJECT FINANCE CREDIT

Transcript:INFRASTRUCTURE PROJECT FINANCE CREDIT:
INFRASTRUCTURE PROJECT FINANCE CREDIT APPRAISAL/EVALUATION NIBAF – MAR 2013 PROJECT FINANCE INFRASTRUCTURE PROJECT DEFINED Infrastructure are basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function. Toll Roads, Rail way Line, Telecommunication, Power Generation/ Transmission / Distribution, Water Supply/Sewerage, Port/Shipping/Container Terminal are all examples of infrastructure. These systems tend to be high-cost investments, however, they are vital to a country's economic development and prosperity. Infrastructure projects may be funded publicly, privately or through public-private partnerships. . PROJECT FINANCE - Defined . Key concept: Non-Recourse finance The World Bank’s definition of project finance is as simple as: Financing is “non-recourse” if lenders are only repaid from the project’s cashflows, and Collateral in the case of failure is limited to the Project assets. Limited-recourse finance, additionally allows lenders some claim on the assets of project sponsors in the case of failure Why does this matter? Specially created project companies have no credit or operating track record. This results in a strong emphasis from lenders on the Feasibility and Future Performance of the Project rather than the quality of credit support from the sponsors or the value of the underlying assets. “use of nonrecourse or limited-recourse financing” World Bank Project Finance – Common Features Projects are usually large / expensive. Typically long term (15 years+). Undertaken via distinct legal entity [Special Purpose Vehicles (SPVs)], High debt to equity ratio (often 70%+ debt) Sponsors provide limited or no recourse to cash flow from other assets. Extensive contracting which governs inputs, off-take, construction & operations. Funding of Single Purpose Assets (main contractors often has equity stakes) Debt Holders rely on Project Cash Flows for Repayment. International organizations or export credit agencies Bank syndicate Non-recourse debt Inter-creditor agreement Input (e.g gas) Supply contract Construction, equipment, operating and maintenance contracts Project company (e.g. power plant) Host government Legal system, property rights, regulation, permits, concession agreements Output (e.g. power supply) Off-take agreement Sponsor A Sponsor B Sponsor C Equity Shareholder agreement Typical Project Finance Structure Advantages of Project Finance The main benefit of project finance is that it can improve the capacity to raise large amounts of long term equity and debt finance from both domestic and international sources. This is achieved because: Project sponsor balance sheets are shielded from risk. If risks are appropriately allocated, sponsors may be willing to undertake project