PROJECT FINANCE at IOB

What is PROJECT FINANCE?

Project finance is the long-term financing of infrastructure and industrial projects based upon the projected cash flows of the project rather than the balance sheets of its sponsors.

Overview

Project finance helps finance new investment by structuring the financing around the project’s own operating cash flow and assets, without additional sponsor guarantees. Thus the technique is able to alleviate investment risk and raise finance at a relatively low cost, to the benefit of sponsor and investor alike.

Frequently Asked Questions

What is the meaning of project finance?

Project finance is the funding (financing) of long-term infrastructure, industrial projects, and public services using a non-recourse or limited recourse financial structure. The debt and equity used to finance the project are paid back from the cash flow generated by the project.

How is project finance different from corporate finance?

In the case of corporate finance, in the first stage of the company, financier looks for “commercial proof of concept” and that is revenue. In the case of project finance, they look for the projected cash flow as usual. As the company is starting, the investor’s risk is much higher than normal.

What is project finance example?

Project finance is long-term financing of an independent capital investment, which are projects with cash flows and assets that can be distinctly identified. Real estate project finance is a classic example. Other examples of project finance include mining, oil and gas, and buildings and constructions.

Who is involved in project finance?

The most usual parties to a project financing are; Sponsor (typically also an Equity Investor)Lenders (including senior lenders and/or mezzanine)Off-taker(s)

What are sources of project finance?

Project finance may come from a variety of sources. The main sources include equity, debt and government grants. Financing from these alternative sources have important implications on project’s overall cost, cash flow, ultimate liability and claims to project incomes and assets.

Is project finance investment banking?

Project finance is one of the most popular but least understood groups in investment banking. Sometimes PF is a standalone product group and sometimes PF is under the corporate banking umbrella (as there is a large lending component).

What are the two phases of project financing?

Project Financing – Financial Scheme for Long-Term Projects. The process of development of a project consists of 3 stages: pre-bid stage. contract negotiation stage.

What are the advantages of project finance?

The company’s project financing enables the project sponsor to fund the project using credible sources. The project funds are collected mostly based on the contracted liability. a)The purchase concludes a long-term product/service purchase contract.

Why is project finance off-balance sheet?

Because there are numerous participants and stakeholders in the project and ownership of the projected is a Special Purpose Entity, the ownership interest of the project sponsor or other project participant is a sufficiently minority subsidiary interest.

What is project financing PDF?

Project finance is the process of financing a specific economic unit that the sponsors create, in which creditors share much of the venture’s business risk and funding is obtained strictly for the project itself.

Is project financing a good career?

As a profile, project finance is quite good. From payment structure to work-life balance, project finance pays off really well. But instead of choosing “lending” roles, try to go for “advisory” roles for learning and growing in the project finance industry.

Is project finance private equity?

The main difference between private equity and project finance is a matter of context. Project finance helps projects thrive, whereas private equity helps businesses (usually the best, not always) reach the top. Private equity investors often finance a project.

What does a project finance analyst do?

A project finance analyst is responsible for analyzing the financial needs and reports of an organization’s project management system. Project finance analysts review project terms and expense forecasting and identify strategies to minimize financial loss.

What are the limitations of project finance?

Expensive as the project development and diligence process is a costly affair. Litigious with regard to negotiations. Complexity due to lengthy documentation. Requires broad risk analysis and evaluation to be performed.

What are drawing powers in project finance?

Drawing Power generally addressed as “DP,” is an important concept for Cash Credit (CC) facility availed by banks and financial institutions. It is the limit to which a firm or company can withdraw from the sanctioned working capital limit.