What is a project financing?

Many of our clients had difficulties to finance their own projects through their local banks (To see our trailer please click here). Paradoxically the international market is looking for secure investment in financial instruments with the expectation of high returns.

This, we thought, is a chance to do two things at the same time.
1. Secure funds for interesting and promising projects
2. Offer either Bonds or Funds (or other, for instance structured products to the international market (with an interesting underlying based on your project securing the investment).

Therefore if you want to finance your projects, come and talk with us (for a contract example for bonds click here, for fund click here and for a complete overview for Funds (Luxembourg) click here and for an overview for time and steps for Bonds please click here)
 
A project financing is financing of a sole subject established for purpose of project realization usually termed as “SPV” (Special Purpose Vehicle). During the project financing the creditor / lender believes in cash flow and incomes of such SPV subject as sources through which the indebtedness will be paid and in assets of such SPV as security for the loan itself.

Project financing means that own and credit sources of financing are paid from cash flow generated by a project. A proposal of financial structure is thus particularly designed with accent to the project´s self-financing ability. This means a verification of the project´s financial flow capacity at level sufficient to cover repayments of debt service, achieving reasonable return of equity capital invested and generation of sufficient reserves for risk coverage.

Project financing sets up the project so the risks and gains related to the project would be justifiably divided among all project parties (namely „sponsors“- shareholders, subscribers, suppliers or operators bearing a particular part of risk) and also financing subjects. Therefore, it is typical that when transactions of such type are realized the owners of the project company are responsible for credit payment up to their share on equity, eventually are responsible for project support in specific cases, which are clearly defined in advance.

It is important to mention that project financing is primarily focused on solution of larger and more specific transactions demanding a sophisticated approach on project basis.

Principal terms and criteria for project realization

Principles of project financing can be applied for either small or large projects. However, in case of non-recourse principle or limited recourse principle towards investors it is necessary to carefully analyze technical, contractual and also financial attributes of the project, preferably in cooperation with qualified advisors in specific cases.

In order to arrange a self-financing project it is necessary to establish the contractual relationships both with principal offtakers and suppliers on the mutually motivated basis. Emphasis on trustworthy agreements concerning project supply and construction is very important. With respect to limited recourse principle these contracts should include conveniently arranged engagements on supply and payment conditions respecting a fixed price and quality of supply. It is preferable to use the FIDIC standards. Not only high-quality security is decisive for feasibility of such projects. Also capability of involved parties to fulfil commitments resulting from the agreements and to bear also potential sanction must be considered. Thus, it is preferable so that parties are appropriately financially strong.

Security

In cases of pure project financing the limited recourse principle is respected and therefore the security is represented usually by all assets of financed project, common example:
Pledge on assets of project company (SPV),Pledge on entity,Pledge on business share in project company,Specific security and obligations of owner, investor and suppliers (including advance payment warranty, performance bonds, retained cash etc.),guarantees, cession of specified returns from insurance benefits.

The security structure is created individually with respect to a particular project and so to respect its commercial and economic nature.

Setup of financingIn the whole process we underline the importance of preparatory phase. Upon primary project identification the client receives an indicative term sheet with basic financing parameters outlining basic frame of the loan terms. In case of acceptance of indicative term sheet conditions by the client the process of obligatory credit application follows.

In standard cases the preparatory process takes 4–8 weeks from admission of indicative term sheet to approval. Consequently 4-8 weeks interval follows for the preparation of credit documentation and compliance with the drawing conditions. This horizon can be assumed in the situation when the client is performing all steps in alignment with the conditions set in indicative term sheet and no negative actualities have occured.

After compliance of all conditions set in the credit application the credit disbursement may begin.

Among key areas which is our team focused on belong mainly
- energy utilization from primary sources and renewable sources,
- infrastructure of land constructions and telecommunications,
- Public Private Partnership projects (PPP),
- environmental projects,
- projects of productive and processing operations.

Nevertheless, we are prepared to provide you with sophisticated support for projects from all areas of human activity.

We consider particular ability of assessment of a concrete business plan being the main added value of our work.

We evaluate particular financial-economic parameters of every project within complex environment of commercial-operational relationships so that we could treat the most range of risks to secure client interests.

In cooperation with the client we design tailored financial conditions and suitable structure of the project.

IFC is prepared to syndicate if applicable.

Within financial advisory we provide services respecting the expectations of the owners / investors / contributors with exploitation of the long-standing experience.

We are able to secure also the complex services concerning financial flows of a project company namely in both construction and operation period including creation of reserve accounts, eventually blocking accounts etc.

In cases where it is suitable IFC is able to provide an integral advisory concerning the subsidy financing (e.g. EU, Funds, investment incentives etc.) namely from subsidy audit to documentation preparation of particular application.

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