Project financing - Softcover

Nevitt, Peter K

Softcover

ISBN 10: 0903121395 ISBN 13: 9780903121392

Publisher: Euromoney Publications, 1983

Synopsis

Fully updated and revised Project Financing includes numerous examples and case-studies, including the Eurotunnel, Dabhol and Hubco deals. These illustrate key issues such as government and multilateral guarantees, risk allocation and effective project structuring, and integrated capital market financings. Interest areas: project finance, project financing, emerging markets, risk management, joint venture, documentation.

About this title

Excerpt. © Reprinted by permission. All rights reserved.

The term 'project financing' was coined and first used in the early editions of this book to segregate and describe certain kinds of instruments and certain types of transactions with unique characteristics which enabled promoters of a project financing transaction to shift debt burden, operating risk and accounting liabilities to third parties, while at the same time retaining significant benefits of the project. In the ensuing years the term project financing has acquired a unique definition as a financing with off-balance sheet and shifted liability characteristics.

In a project financing, the project, its assets, its contracts, its inherent economics and its cash flows are segregated from its promoters or sponsors in order to permit a credit appraisal and loan to the project, independent of the sponsors. While in the final analysis lending to a project requires strong credit support from some source, frequently this support can be accomplished in an indirect or contingent manner which may have little or no impact upon the sponsor's debt capacity when compared to a direct borrowing. In some circumstances the credit of third parties unrelated to the sponsor can be used to support the credit standing of the project.

Since the first edition was published, the financial and capital markets have undergone tremendous change and a host of new structures and instruments have been created to meet the financing needs of businesses. Traditional commercial banking has been severely displaced by new financial instruments and products. While those of us in the financial business might like to think we are getting smarter in designing new products, a major reason for this rapid development is undoubtedly due to the more efficient dissemination of information and sharing ideas as a result of improved and more rapid communication. Information including techniques for financial analysis which used to be restricted to a few so-called experts is now available to anyone with an up-to-date personal computer through readily accessible data information services, the internet, and off the shelf software. The information age has arrived, and the future looks bright indeed for development of new and useful financing techniques.

The age of electronic data transfer and the internet has also given rise to financing internet start-up companies by methods that defy the traditional rules of project finance. Such financing which is often based solely upon rosy unsubstantiated financial forecasts is confined to equity related securities that are usually provided by professional venture capital firms (called VCs) or professional venture capital funds. Both the risks and possible rewards are huge. While this is a narrow exception to the rules of project finance, it deserves mention as an exception.

This book does not hold itself out as having the pretensions of an intellectual treatise. Rather, it is merely intended to provide a conceptual starting point for the further development of the reader's ideas on project financing. It is hoped that it may also serve as a useful checklist for specific project financings. Perhaps more important, however, the book is a compendium of concepts and structures that can be applied at any stage in the analysis of an anticipated or proposed project financing.

Although largely based on methods developed and widely used in the United States, the ideas and concepts presented can be profitably employed by financial managers worldwide. Project financing is global financing, and financial executives everywhere will find that the successful conclusion to such financing depends in no small measure upon the bringing together of a number of disciplines, experts and analytical techniques. This book attempts to provide a useful road map as to how to marshal those resources for an effective and profitable result.

A project financing requires careful planning at its early stages in order to achieve the maximum desired result of a segregated financing at as low a price as possible. The entity to house the project must be carefully chosen. Financial instruments to be used to evidence debt obligations and equity must be reviewed. Joint venture partners or investors and lenders must be carefully selected. Borrowing options must be preserved. Any supply contracts or sales contracts must be carefully drafted.

The operating climate and political stability of the environment for the project must be satisfactory. A system of laws protecting property rights of creditors and owners must be in place. A stable and predictable rule of law is a crucial ingredient for project financing. In the final analysis, the ultimate financial engineering of a project financing is only limited by the imagination and care of the financial adviser in making use of the circumstances of the transaction and the tools at hand.

Review

A comprehensive, well-informed and essential guide for those involved in all aspects of project finance --Ian R Coles, Partner, Mayer, Brown, Rowe and Maw LLP

Edition details

• Publisher: Euromoney Publications
• Publication date: 1983
• ISBN 10: 0903121395
• ISBN 13: 9780903121392
• Binding: Paperback
• Language: English
• Edition number: 4
• Number of pages: 273