Special Purpose Vehicle (SPV)

Special Purpose Vehicle(SPV)
The name SPV is given to an entity

which is formed for a single, welldefined and narrow purpose. An SPV
can be formed for any lawful purpose.
SPVs are mostly formed to raise funds
from the market. Technically, an SPV is
a company. It has to follow the rules of
formation of a company laid down in
the Companies Act. Like a company, the
SPV is an artificial person. It has all the
attributes of a legal person. It is
independent of members subscribing to
SPV
A special purpose vehicle (SPV) is a
financial entity created for the purpose
of fulfilling a very specific and limited
use. It is separated from the sponsoring
or parent company for legal and tax
reasons, and may be controlled by
several companies working together.
Web Of contracts for an SPV
Why is a SPV Created?

SPV is usually created to isolate the
parent company from risk. In addition
to isolating risks, it is itself isolated
from financial risks at the parent
company such as bankruptcy, and it
is sometimes called a bankruptcy
remote entity for this reason.
Ratnagiri Gas and Power Pvt Ltd

(RGPPL) is a special purpose vehicle
(SPV) formed by GAIL (India) and NTPC
to revive the 2,184 MW Dabhol power
plant. The SPV will have an equity of
Rs 1,500 crore.
The Registrar of Companies has
allotted the name to the SPV and the
documents pertaining to incorporation
have been filed. The new company will
own and operate the assets of the
The company would also complete the

remaining works of the LNG terminal, which
is 75 per cent complete, and also operate
the terminal.
As promoters, GAIL would source the LNG
required to run the power plant while NTPC
would operate the plant and negotiate the
power purchase agreement with
Maharashtra state electricity utilities.
The Dabhol plant has been lying idle for
over four years after the MSEB stopped
drawing power owing to payment disputes
A special purpose vehicle (SPV), as the name

suggests, is formed for a special purpose.
Therefore, its powers are limited to what might
be required to attain that purpose and its life is
destined to end when the purpose is attained.
SPVs are also referred to as a "bankruptcyremote entity" whose operations are limited to
the acquisition and financing of specific assets.
The SPV is usually a subsidiary company with
an asset/liability structure and legal status that
makes its obligations secure even if the parent
company goes bankrupt.
When a corporation, call it the sponsor of the

SPV, wants to achieve a particular purpose,
for example, funding, by isolating an activity,
asset or operation from the rest of the
sponsor's business, it hives off such an
asset, activity or operation into the vehicle
by forming it as a special purpose vehicle.
This isolation is important for external
investors whose interest is backed by such
hived-off assets, etc, but who are not
affected by the generic business risks of the
entity of the originating entity.
Thus SPVs are housing devices - they house the

assets transferred by the originating entity in a
legal outfit, which is legally distanced from the
originator, and yet self-sustained as not to be
treated as the baby of the originator.
An SPV is a firm, which embodies a financial
contract. SPVs are originally used to isolate
financial risk. A special purpose vehicle is being
set up to finance a large project without putting
the entire firm at risk.(Non/Limited Recourse)
The importance of infrastructure for rapid economic

development cannot be overstated. The most glaring deficit
in India is the infrastructure deficit. However, there are many
infrastructure projects that are financially viable but, in the
current situation, face difficulties in raising resources.
Therefore, it is imperative that such projects may be funded
through a financial SPV, as proposed by the finance ministry.
When large infrastructure projects are implemented, the
foreign exchange resources could be drawn for financing
necessary imports. Accordingly, the finance ministry
proposed to establish an SPV to finance infrastructure
projects in specified sectors during the Budget. Roads, ports,
airports and tourism would be sectors that can benefit most
from the SPV.
The projects are to be appraised by an inter-institutional

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What is a special purpose vehicle?

Why are SPVs created?

Special Purpose Vehicle(SPV)

The name SPV is given to an entity

Web Of contracts for an SPV

Why is a SPV Created?

Ratnagiri Gas and Power Pvt Ltd

The company would also complete the

A special purpose vehicle (SPV), as the name

When a corporation, call it the sponsor of the

Thus SPVs are housing devices - they house the

The importance of infrastructure for rapid economic

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