Project financing -The issue of providing financial and credit resources for the implementation of various industrial projects, especially large oil and gas industries in the upstream, intermediate and downstream sectors, is a key issue in achieving the planned goals, and is clearly clear. The first step in providing the mentioned resources is to know and be aware of the common techniques and methods in the international arena in the field of related issues.
In recent years, financing has become a good solution and model for financing the economic activities of commercial institutions such as ministries and all state and even international companies.
Due to the role of production and development projects or infrastructure in promoting the economic growth of a country and the need to achieve the planned goals, the need for financial and credit resources is becoming more and more intense, so that in today’s world is witnessing intensifying competition. We are countries and of course different companies in obtaining the necessary financial and credit facilities and attracting foreign capital.
The issue of providing financial and credit resources for the implementation of various industrial projects, especially large oil and gas industries in the upstream, intermediate and downstream sectors, is a key issue in achieving the planned goals, and is clearly clear. The first step in providing the mentioned resources is to know and be aware of the common techniques and methods in the international arena in the field of related issues.
Historically, project financing included bank loans, but in the current development, this perception is changing and includes the growing proportion of project debt (including bonds / bonds, etc.).
In order to better understand this issue, it is necessary to study the definitions provided for the project financing method. Hence, the definitions provided below are discussed first:
Definitions of project financing methods
There are several definitions for project financing:
1. Project financing generally refers to a procedure or style of securing resources independently or with limited reliance on debt, the applicant’s share of the loan and the increase in credit capacity for construction and operation, or the re-provision of borrowing resources. A particular device / facility is used in a capital industry. This definition refers to the salient features of the method from the perspective of the project sponsor in relation to the debt obligations created.
2- Project financing The long-term provision of resources for industrial and infrastructure projects is based on the projected cash flow for the project, regardless of the balance sheets of the project guarantors.
In other words, the provision of project resources is in the form of a loan that is primarily dependent on the cash flow of the project for repayment, project assets, salaries and benefits retained as a secondary guarantee or collateral.
3- Project financing means raising funds to provide resources for an economically separable investment project in which the funders basically use the cash flow of the project as a cash source to repay the loans. They look at the dividends and profits accrued to their share of the investment in the project.
4- Project financing: A resource financing program for a specific economic unit in which a lender first looks at the cash flow and income of the said entity as the cash source through which a loan will be repaid and The assets of the economic entity in question are secured as collateral for the loan.
5. Project financing is associated with the establishment of a legally independent project company to provide resources in exchange for independent debt (and a share received from one or more guarantors) in order to provide resources for an independent purpose, industrial assets.
It can be seen that the above definitions and other definitions (which are used today in various books, articles and valid dictionaries to define the concept of project financing) show that the use of this method depends on three decisions. Important: First, make an investment decision in relation to an industrial asset or infrastructure project.
Second, to distinguish between projects related to the extraction, production and sale of raw materials in which the proceeds are the source of debt and repayment, and other projects such as pipelines, telecommunications systems, power plants in which assets and Revenue from that is considered a source asset.
Third, to decide on the establishment of a legally independent company (which will own the resulting assets).
As a result, project financing defines a form of financing through which its implementation does not appear on the balance sheet (project guarantor or guarantors).
Of course, when the guarantor of the project is a company or when it comes to the preparation of consolidated financial statements, it is likely that the accounting procedure will be followed in such a way that the issue of reflection of assets and liabilities and financial liabilities in the consolidated financial statements of the guarantor To be placed.
In view of the above, it can be concluded that project financing is a method of financing that does not depend on the credibility, competence and capability of the guarantor or guarantors of the project, ie the parties proposing a work plan to launch the project, even Its approval does not depend on the value of the assets that the guarantor or guarantors of the project wish to pledge to the capital suppliers. Instead, it is essentially a function of the project’s ability to repay or repay contractual debt and recoup the investment made at a rate commensurate with the degree of risks or inherent risks involved in the economic activity.
According to this method, organized sourcing of an enterprise with an economy (an intermediary company or a project company) that is established by the guarantor or guarantors using their share in the provision of resources or basic debt to finance the project and loans After reviewing the cash flow of the project as the main source of loan repayment and accepting its assets as collateral, the lender will provide resources for the project.
In the project financing method, an attempt is made to define the project as an independent subject and perhaps even as a business unit or an enterprise.
In other words, in this method, the project is defined in such a way that it is possible to provide the necessary resources for its implementation, based on the cash flow from the sale of future products.
Therefore, in this method, attracting these resources to finance a new project must be done through the establishment of an intermediary company in a restricted manner.
A project company or intermediary company is established for the purpose of implementing or supervising the implementation of one or more projects as a company affiliated with the parent company or a subsidiary company.
Risks and risks associated with project implementation based on:
– The nature and specifications of the project
– Investigate the possibility of success or failure in achieving the planned goals
– The attractiveness and acceptance of the project products (in different markets) and thus ensure the realization of cash flow forecast.
In general, such indicators are evaluated because if the project is not successfully implemented for any reason, the project resource suppliers are basically not entitled to sue the guarantor or guarantors of the project and the assets and cash flow of the guarantor company, or To a very limited extent and under certain conditions, they can sue the assets and income of the guarantor companies.
Therefore, shareholders can easily benefit from the creation of a legal entity for the new project in the form of an intermediary company, because by using the project financing method, large risks and risks can be shared between the trading partners. With the distribution of risks, the likelihood of vulnerability decreases.
As a result, it is clear that shareholders’ debt-to-equity (or equity) ratios can easily be improved.
But an important drawback or obstacle to this practice is that structuring and organizing such a transaction is, in fact, more expensive and cost-effective than corporate finance, due to the use of financial, insurance and legal advisors, and loan organizers. Who spend a lot of time evaluating the project and conducting contract negotiations and documentation.
On the other hand, in addition to the cost of setting up and running a new company, the cost of monitoring the ongoing project is very high, and lenders expect to be paid significant fees in return for accepting the risks involved.