Project Financing-Lenders Perspective
Project Financing-Lenders Perspective
Project Financing-Lenders Perspective
Table of Contents
Introduction to Project Finance
Benefits to Investors
Benefits to Public Authority
Benefits to Lenders
Several methods available for funding that range from complete recourse to the
sponsors existing assets and cash flows to non-recourse project finance
Full Recourse
Corporate Credit
Low risk
Simple contractual
framework
Non-Recourse
Structured Solutions
Limited recourse
Higher risk
Increased complexity
Project Finance
High risk
High complexity
Relative Size
Quality of Stakeholders
Sponsors
Suppliers
Financiers
Buyers
Cost of Implementation
Nature of Business
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Full Recourse implies that creditors have access to existing cash flows and assets
Structured Finance
Allows borrowing against the value of a specific asset, project or income stream
rather than on the basis of the borrowers own credit rating.
-
In general a structured finance solution seeks to isolate the risk of the loan
facility from the overall risks of the borrowers business.
Features
Transparency of information
Security
Financing
Project Finance
Corporate Finance
Control
Duration
Project Finance
Corporate Finance
Companies with capitalization issues, i.e. who cant borrow any further on the
strength of their existing balance sheets.
Public goods, where risks and rewards can be identified and captured, such as tolls,
roads, bridges, and other infrastructure projects.
Where the projects risks are too large for any one stakeholder to cope with and/or
where the stakeholder(s) dont want commingling with the borrowers other
assets.
Pre-completion
Design
Political
Delay
Construction
Post-completion
Commissioning
Conflict of Interest
Sponsor Default
Forced Abandonment
Cost Overruns
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Each project participant approaches risk sharing from the perspective of its
own set of interests.
Examples:
-
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Shareholders Agreement
Independent
Technical &
Insurance
Consultants
Operator/ O&M*
PROJECT COMPANY
Lenders
Legal
Counsel
Raw Materials
& Utilities
Market/ Offtaker
Assignments/Guarantees
Independent
Technical &
Insurance
Consultants
Commercial Lenders
Agency Agreement
End Product
Concession Agreement
Sponsors
legal
Counsel
Loan Agreement/
Security Package
O&M Contract
Ceding
Authority
Equity
Investor
Equity Contribution
Agreement
Supply Contracts
Contractor
-Equipment Supplier
-Design Consultant
Equity
Investor
Agent/Security
Trustee
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Benefits to Investors
-
Limited risk contamination between the project and the rest of the
investors businesses (risk is quarantined to invested equity);
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Higher IRR portfolio On account of higher risk and longer tenors, project
finance transactions attract higher pricing and generally drive up the banks
IRR profile;
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Capital
Markets
Sources
Multilateral
Agencies
Investment
Funds
Export
Credit
Agencies
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Bank Debt
-
Capital Markets
-
Investment Funds
-
International DFIs
-
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Islamic Finance
-
Multilateral Agencies
-
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Role of DFIs
During the 60s, 70's and 80's DFI's were instrumental in creating
new assets in light engineering, textiles and sugar in particular.
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The 1292 MW, $1.6 billion Hub Power Project was hailed as a landmark in
the field of infrastructure finance at the time of financial close in 1995.
HUBCO laid the foundation for the model agreements under the 1994
Private Power Policy.
The IPPs project finance was done on FCY basis, hence there was no local
market participation.
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Fatima Fertilizer, was constructed at a cost of around PKR 63 billion and is the
largest domestically developed and funded project in Pakistan to-date
i.
The construction of the project was started in 2007 and achieved
commercial operations date on July 2011.
ii.
The design capacity is Urea-500,000 Metric Tons, CAN-420,000 Metric Tons;
and NP-360,000 Metric Tons.
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PKR bn
80
70
60
50
40
73
30
57
40
20
22
10
14
2007
2008
2009
2010
2011
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Thank you
|Saeed Iqbal|EVP & G ROUP H EAD, I NVESTMENT B ANKING G ROUP |
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Minerals
Nat. Resources
Municipalities
Govt. Agencies
1960
1970
1980
1990
[PPP]
2000