Characteristics of the project financing method
Characteristics of the project financing method
Characteristics of the project financing method – In summary, the specific aspects of project financing are:
– Project risks are fairly distributed among all relevant parties in the transaction (with the aim of distributing the risks among the contracting partners in the best way they can).
– The cash flow generated by the project company must be sufficient to pay the operating costs and cover the project debt, including the repayment of principal and interest. The rest of the funds can only be divided between the guarantors of the project if the last two issues have been realized.
Collateral (project assets) is granted to lenders by project guarantors as collateral.
Provide sources of funds that are accurately funded for the project without expecting the government or corporate guarantor to rely on the project debt (at least not in full).
– Project financing method is generally for capital projects that have relatively clear cash flows and higher risk than usual. Is used.
This method is very effective in some industries to provide specific investment funds, and typically for capital-based infrastructure investments (with sustainable technology or with a stable rate of return convertible into common currencies), the case Used.
Stakeholders in project financing
Project financing usually involves the following:
The borrower is a single-purpose project company that is financially and legally independent of the project sponsors.
Lenders have only a limited right (or in some cases no right of recourse) to project guarantors after the project is completed. In fact, the relationship of project guarantors in a limited time (usually during the establishment of a project company until the start of the company), to a certain extent (injecting the share of the agreed partnership, if certain financial-economic studies are not satisfactory) and Qualitative (managing system performance and ensuring the performance of certain levels of performance) emerges.
This means that the risks or rewards of a transaction must be assessed differently from what is used for the risks of pre-activated companies.
Creditors who participate in a significant portion of the risk or risk of the economic activity in question, in other words, the risk of the transaction is distributed.
Other related stakeholders in the project financing process include the following:
Insurers: The size and capacity of many projects to create different types of obligations and debts to individuals and legal entities, organizing and arranging appropriate insurance coverage is inevitable.
Therefore, insurers or insurance companies play a key role in various projects.
Sponsors / guarantors and lenders / financiers of the project are seriously considering the issue of insurance and the insurer, given the possibility of various damages.
– Financial Advisor: The project sponsor can use a commercial bank to provide financial advisory services to ensure that the loan documentation and financial structure are properly observed.
This consultant is theoretically and scientifically familiar with the situation in the host country and is able to advise on the legal requirements and transaction structures in the country.
A financial advisor can also advise on the cash flow chart, the issue of intermediary creation, the governing tax system, currency considerations, suitable locations for the project and the amount of capital required, and in particular how to organize the project financing process. To comment.
Financing consulting services can also provide legal advice / licenses for financing structure, related accounting topics, project expected costs and projected cash flow table, and finally prepare a report or note summarizing project information. To offer.
Organizer: Usually a bank that forms a syndicate or union (consisting of lenders and lenders). The bank, also known as the group manager / managing director, generally negotiates the proposed financing terms or the terms and conditions of the bonds with the borrower.
The facility broker handles the details of the loan on behalf of the union or syndicate and is not responsible for the decisions of the lender or lender in relation to the subject matter of the transaction because it is the operating bank that is responsible for the mechanical aspect of the loan. Withdrawal and use of funds according to the program agreed in the contract), repayments and correspondence of the parties related to financing such as declarations and reports.
The facility broker will also oversee the implementation of the project and (if necessary, take action) to obtain the votes of the members of the group when necessary and will notify the borrower and facility of the decisions taken.