Presenting by :

Airaf
Umair
Moin
Akbar
Ijlal
Introduction – What is a Project?
A Project is normally a long-term infrastructure, industrial or
public services scheme, development or undertaking having:

large size
Intensive capital requirement – Capital Intensive
finite and long Life
few diversification opportunities i.e. assets specific
Stand alone entity
high operating margins
Significant free cash flows

Such projects are usually government regulated and monitored

which are allowed to an entity on B.O.O or B.O.T basis.
Introduction – Types of Project.
 Motorway and expressway
 Metro, subway and other mass transit systems
 Dams
 Railway network and service – both passenger and cargo
 Power plants and other charged utilities
 Port and terminals
 Airports and terminals
 Mines and natural resource explorations
 Large new industrial undertakings – [no expansion and
extensions
 Large residential and commercial buildings
Introduction – What is Project Financing?
International Project Finance Association (IPFA) defined project
financing as:

“The financing of long-term infrastructure, industrial projects

and public services based upon a non-recourse or limited
recourse financial structure where project debt and equity used
to finance the project are paid back from the cash flows
generated by the project.”

Project finance is especially attractive to the private sector

because they can fund major projects off balance sheet.
Introduction – For whom is it important to
understand project finance?
 Financial managers
 Sponsors
 Lenders
 Consultants and practitioners
 Project managers
 Builders
 Suppliers
 Engineers
 Researchers
 Students
Introduction – Why is it important to
understand project finance?
The people involved in a project are used to find financing deal
for major construction projects such as mining, transportation
and public utility industries, that may result such risks and
compensation for repayment of loan, insurance and assets in
process. That’s why they need to learn about project finance in
order to manage project cash flow for ensuring profits so it can
be distributed among multiple parties, such as investors,
lenders and other parties.
Stages in Project Financing
Project identification
Risk identification & minimizing Pre Financing Stage
Technical and financial feasibility
Equity arrangement
 Negotiation and syndication Financing Stage
 Commitments and documentation
 Disbursement
 Monitoring and review
 Financial Closure / Project Closure Post Financing
Stage
 Repayments & Subsequent
monitoring
Stages in Project Financing – Project
Identification
 Identification of the Project
 Government announced
 Self conceived / initiated

 Identification of market
 Product of the project
 Users of the product
 Marketability of the product
 Marketing Plan
Stages in Project Financing
Risk Identification and Minimizing
Risk Solution
Completion Risk Contractual guarantees from contractors,
manufacturer, vendors etc.
Price Risk repute.
hedging
Resource Risk Keeping adequate cushion in assessment.
Operating Risk Making provisions, insurance.
Environmental Risk Insurance
Technology Risk Expert evaluation assessment
Interest Rate Risk Swaps and Hedging
Insolvency Risk Credit Strength of Sponsor, Competence
of management, good corporate governance
Stages in Project Financing – Technical
and Financial Feasibility
 Technical feasibility
 Location
 Design
 Equipment
 Operations / Processes

 Financial feasibility
 Business plan / model
 Projected financial statements with assumptions
 Financing structure
 Pay-back, IRR, NPV etc.
Stages in Project Financing – Equity
arrangement
 Sponsors
 Lead sponsors
 Co – sponsors

 Private equity participation

 Angel investors – Private equity funding
 Financial institutions
 Non-financial institutions
Stages in Project Financing – Negotiation
and syndication
 Lenders
 Banks
 Non- banking financial institutions
 International lending institutions

 Syndication
 Lead arranger
 Co-arrangers

Negotiation
 Pricing
 Documentation
 Disbursement
Stages in Project Financing –
Documentation
 Commitment letters / MOUs
 Commitment letters from sponsors and investors
 MOU signing with financiers

 Documents
 Offer Letters
 Lending agreements
 Security documents
 Disbursement plan

Contracts
Management/shareholder agency relationship
Inter corporate agency relationship
Government/corporate agency relationship
Bondholder stockholder relationship
Stages in Project Financing –
Disbursement
 Loan Disbursement
 Sponsor loans
 Advance payments
 Progress Payment
Stages in Project Financing – Monitoring
and Review
 Why?
 Project is running on schedule
 Project is running within planned costs
 Project is receiving adequate costs

 How?
 First hand information
 Project completion status reports
 Project schedule chart
 Project financial status report
 Project summary report
 Informal reports
Stages in Project Financing – Financial
Closure / Project Closure
Financial closure is the process of completing all project-related
financial transactions, finalizing and closing the project financial
accounts, disposing of project assets and releasing the work site.

Financial closure is a prerequisite to project closure and the Post

Implementation Review (PIR). A project cannot be closed until all
financial transactions are complete, otherwise there may not be
funds or authority to pay outstanding invoices and charges.
Financial closure establishes final project costs for comparison
against budgeted costs as part of the PIR. Financial closure also
ensures that there is a proper disposition of all project assets
including the work site.

Project closure and commencement take place after financial

closure.
Stages in Project Financing – Repayment
& Subsequent Monitoring
 Repayments
 Grace period
 Monthly installment
 Quarterly installments
 Dividends

 Monitoring?
 Appointment of directors and managers
 Management meetings
 Board meetings
Advantages of Project Financing
 Eliminate or reduce the lender’s recourse to the sponsors.
 Permit an off-balance sheet treatment of the debt financing.
 Avoid any restrictions or covenants binding the sponsors
under their respective financial obligations.
 Avoid any negative impact of a project on the credit standing
of the sponsors.
 Obtain better financial conditions when the credit risk of the
project is better than the credit standing of the sponsors.
 Allow the lenders to appraise the project on a segregated and
stand-alone basis.
 Obtain a better tax treatment for the benefit of the project,
the sponsors or both.
Disdvantages of Project Financing
 Often takes longer to structure than equivalent size
of corporate finance.
 Higher transaction costs due to creation of an independent
entity.
 Project debt is substantially more expensive due to its
non-recourse nature.
 Extensive contracting restricts managerial decision making.
 Project finance requires greater disclosure of proprietary
information and strategic deals.
Conclusion

Project financing facilitates the development of large

infrastructure projects, which are often critical to a
country's economic growth.
As the financial environment continues to evolve,

project financing continue to enjoy a prominent place

among the most important financing techniques in the

global economy.
Thank you very much
for your time