Project Financing Fn

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Project Financing means :Project Financing means :

arranging funds for implementinganew project

undertaking expansion, diversification, modernization or

rehabilitation of existing projects.

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PROJECT FINANCINGPROJECT FINANCING

Project financing is a special case of financing in which lender relies on repayment

from the net cash flow generated by the project.

Project finance is provided against assets ofand the rights in a particular project

rather than against the borrowers balance sheet.

Financers are therefore concerned to analyze the risks associated with the project

before they accept the investment opportunity which it represents.

The cost and terms of financing reflect the financiers view about the riskiness of

the project

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Types of ProjectsTypes of Projects

Manufacturing Projects

Designed or built to order machines /equipment

New product development projects

Greenfield Projects

Establish buildings or operating plants at remote sites Infrastructure projects

Scientific Research Projects

Innovative, experimental, developmental

System development Projects

Systems / software development & implementation

Management Projects

Managing change within organization

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Characteristic features of major projects:Characteristic features of major projects:

very large & capital intensive

dedicated to a single purpose & none of the equipments can be used for other

purpose

time for project development & implementation is quite long, returns are deferredfor some years

they often exceed capacity ofa single organization to plan, supply & construct

they are technically complex demanding resources of skill, manufacturing &

production which are not widely available

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IdentifyingIdentifying sourcesoffinance :

IdentifyingIdentifying suitablesuitable sourcessources ofof financefinance isis thethe firstfirst stepstep inin planningplanning financefinance forfor aa

projectproject..

FinanceFinance forfor projectsprojects fallsfalls intointo twotwo majormajor categoriescategories::

DebtDebt:: BorrowerBorrower hashas thethe obligationobligation toto repayrepay.. DebtDebt alsoalso usuallyusually carriescarriesobligationobligation toto paypay interestinterest andand toto adhereadhere toto aa prearrangedprearranged repaymentrepayment

scheduleschedule.. TheThe lenderlender hashas prioritypriority claimclaim ifif borrowerborrower goesgoes intointo liquidationliquidation..

EquityEquity:: FundsFunds subscribedsubscribed byby thethe shareholdersshareholders fromfrom theirtheir ownown resourcesresources..

ThereThere isis nono guaranteeguarantee thatthat thethe dividenddividend willwill bebe paidpaid andand investorsinvestors tendtend totolooseloose theirtheir moneymoney ifif thethe projectproject failsfails toto performperform.. EquityEquity shareholdersshareholders havehave

thethe lastlast claimclaim ifif thethe projectproject goesgoes intointo liquidationliquidation

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Sources of Finance :Sources of Finance :

The main sources ofdebt finance are:

Commercial banks

Multilateral lending institutions

Suppliers of equipment & services for the project

Suppliers of raw materials to the project

Buyers of output from the project

The main sources of equity finance are:

Corporate cash flow generated by existing business operations

Corporate or individual investors, or funds raised through stock markets

Joint venture partners

Government subscriptions & aids Multilateral investment institutions

Venture capitalists

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Unconventional Sources of Project financing :Unconventional Sources of Project financing :

Leasing:

Use of project assets through off-balance sheet financing.

Forfaiting:

Sale of financial instruments due to mature in future.

Counter-Trade:

Seller accepts goods or services in lieu of cash payments.

Switch Trading:

Making use, via a third party, of uncleared credit surpluses arising from bilateral

trade agreements.

Offset:

Exporter oftechnically advanced project incorporates an agreed value of materials,

equipment & services supplied by the buyer.

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Unconventional Sources of Project financing :Unconventional Sources of Project financing :

Franchise Financing:

Engineering & construction contractors become equity holding joint venture partners

for the project they design & build.

Debt/Equity Swapping:

Multinational technology owner buys host country debt at a discount. The debt isredeemed in local currency at favourable rate of exchange for setting up a local

company. The local company uses transferred technology to earn foreign exchange,

replace imports & generate local employment.

Build Operate Transfer (BOT):

Government grants concession to a project company to build a facility and operate iton commercial basis. Facility is transferred to governmen t a t the end of the

concession.

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Project financing :Project financing :

The most important thing in any project financing

is preparation of Detailed Project Report (DPR)which should be made beautifully for getting theproject approved from banks/financialinstitutions. After preparation of DPR theproposal is moved to the banks/financialinstitutions for processing ofthe file.

Conclusion


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PRESENTED BY

SHOBHIT SINGHEE

Documents

Project Financing Fn