PROJECT FINANCE Simon Par Keeling, Société Générale Paris.
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Transcript of PROJECT FINANCE Simon Par Keeling, Société Générale Paris.
PROJECT FINANCE
Simon Par Keeling,Société Générale Paris
What do we mean by a Project?
Investment made by a "sponsor ", either:a companyor often a joint-venture
in a long term project / concession, which is either:"greenfield" developmentor a sizeable increase in capacity or significant
refurbishment/extension of an existing plant which will generate a well defined stable cash-flow
Project Finance : General Definition
Financing of a specific investment, the reimbursement of which is linked to and based upon the future cash-flows of the project, with limited recourse to the Sponsors of the project company
Project needs to be well defined conceptually and contractually
For Banks, Project Risk is between Capital Risk and Asset or Corporate Financing
How do companies finance their Projects?
"CORPORATE"FINANCING
Internal cashgeneration
Raise equity Bonds Loans
Banks is financing a corporateto do a project
Financial analysis of thecompany
"PROJECT"FINANCING
Equity Quasi equity Loans (limited
recourse)
Bank is financing a project andnot the sponsors developingthe project
Nature of project cash flows Credit rating of mayor project
counter–parties Contractual structure Project's risks evaluation
Types of Project where Project Finance can be used
Private companies (well defined projects with appropriate counter party risks)
Government / local authority privatisation (PFI/PPP type projects)roadswaste collection water treatment
Drivers for a Project
Government / local authoritiesBudget considerations - Project passed to private sector via a
long term concessionDesign, construction, financing & operation passed to private
sector (DBFO)An appropriate level of project risk passed to private sector
SponsorsEquity investment and returnsConstruction and operating contractsBalance-sheet considerations
Project Finance Structure
PROJECTCOMPANYBANKS
AWARDINGAUTHORITY
Concession Contract
FinancingContracts
SPONSORS
EquityContracts
CONSTRUCTOR OPERATOR
ConstructionContracts
OperationContracts
Project Finance Features
Debt service relies on future cash flows of a particular project instead of corporate operations ("limited recourse")
Insulation of the "Project" Project Risks identification Project Risks allocation between sponsors, outside investors, banks,
insurers, etc...
For the banks, this leads to an "investor like" approach Project rationale analysis What are the most appropriate financing structure and instruments
to reconcile various objectives ? Schedule / Cost optimization Banking due diligence
Project Approach (1)
Sponsors objectives and project's rational Risk analysis :
General risks : country, economic, politicalCorporate risks : financial and contractual
obligations
Project Approach (2)
Specific risks :» regulatory
» technical
» construction completion (delays, cost overruns, performances)
» supply, reserves
» operations (performances, availability, operating costs)
» market (volume, price, traffic)
» financial risk (exchange, interest, liquidity, transferability risks)
» Force Majeure
Project Approach (3)
Overall contractual structure (required entities, fiscal optimization)
Cash flow analysis and sensitivities Allocation of risks between parties
contractsguaranteesspecific supportsinsurances
Independent advisersTechnical, Legal, Insurances
Project Approach (‘4)
DocumentationContracts, AgreementsSecurity Agreements (pledge of shares, of revenues,
assignment of contracts, mortgages, offshore project accounts, etc.)
Cash flows allocation order
Syndication
Construction Companies
Case by case approach, within a typical frame
Contractor
OperatorShareholders
Governmental Authority
Consumers / Offtaker
Performance Bond Banks
Concession / Project
Company
Lenders
Insurance Companies
Sub-contracts
Pledge of shares
Revenues
Concession Agreement
Construction Contract
Support Agreements
Credit FacilitiesSecurities
O&M Contract
Supplier
Shareholders Agreement