Introduction to

Project Finance
PRESENTED BY:

Dr. Amit Hedau,

Asst. Professor, NICMAR
Table of Meaning of Project
Project Finance

Contents Project finance Vs Corporate Finance

Advantages and Disadvantages of Project Finance
 Meaning of Project &
Its Features
01. Definition Features Features Features
Project Finance is the Long Term Financing Project must generate Project has a finite life
structured Financing of a of a Specific Project sufficient cash flow for debt
special economic entity—the
SPV, or special-purpose repayment and dividend.
vehicle, also known as the
project company—created by
sponsors using equity or
mezzanine debt and for which Project Company is a Debt is secured by assets of
the lender considers cash Special Purpose Vehicle project company (SPV)
Flows as being
the primary source of loan (SPV)
reimbursement, whereas
assets represent only
collateral..
Need of Project Financing
• Alternative 1 – Balance Sheet Financing.

• Alternative 2 –
• Project Financing using SPV.

Project finance is classified as a non-recourse type of financial structure.

 Project Finance
01 Advantages 02 Disadvantages
1. Complexity of the process due to the increase in the
1. Allows the promoters to undertake projects without exhausting their
number of parties and the transaction cost.
ability to borrow amount for traditional projects.
2. Expensive as the project development and diligence
2. Limits financial risks to a project to the amount of equity invested.
process is a costly affair.
3. Enables raising more debts as lenders are sure that cash flows from the
3. Litigious with regard to negotiations.
project will not be siphoned off for other corporate uses.
4. Complexity due to lengthy documentation.
4. Provides stronger incentives for careful project evaluation and risk
5. Requires broad risk analysis and evaluation to be
assessment.
performed.
5. Facilitates the projects to undergo careful technical and economic
6. Requires qualified people for performing the
review.
complicated procedures of project finance.
6. Eliminates the dependency on alternative nature of funding a project.
7. Obligations regarding the trust fund account need to
7. Facilitates the arrangement of liability financing and credit
clearly specify.
improvement, accessible to the project but unavailable to the project
8. Higher level of control which might be exercised by
sponsor.
the banks, which might bring conflict with the
8. Enables the diversification of the project sponsor’s investments to
businesses or contract.
reduce political risk.
9. Gives more incentive for the lender to cooperate in an atmosphere of a
troubled loan.
10. Enables to have prolonged credit opportunities.
11. Matches specific assets with specific liabilities.
 Stages in Project in Financing
1 2 3
Pre-Financing Financing Post Financing
1. Arrangement of Finances 1. Timely Project Monitoring
1. Identification of the Project Plan
2. Loan or Equity Negotiation 2. Project Closure
2. Recognising and Minimising the Risk
3. Documentation and Verification 3. Loan Repayment
3. Checking Project Feasibility
4. Disbursement

LIFE CYCLE OF PROJECT: From Project Idea to CP &

CA
Contact
Information
PHONE NUMBER
937 310 54 28

EMAIL ADDRESS
ahedau@nicmar.ac.in
 Thank you!
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