Project Finance

Understanding Project Finance 

Project finance is the evaluation of a project's financial viability throughout its duration. It involves conducting a cost-benefit analysis to compare the project's economic costs and benefits, especially for long-term CAPEX projects. The process begins with establishing the financial structure and then estimating the economic benefits to see if they surpass the costs. 

The Structure of Project Finance 

A build, operate, and transfer (BOT) project uses a specific project finance structure with key components like a special purpose vehicle (SPV). The SPV, a company created for the project, outsources most of the construction and operation tasks. The SPV can repay its debt only during the operation phase as new-build projects have no income during construction. This arrangement poses significant risks, and the only income source during construction usually comes from a contract to sell the project's output or service. The project sponsors and the government are not obligated or liable beyond their equity stake in the SPV. 

Project Finance Sponsors 

• Industrial sponsors
• Public sponsors
• Investors Or Financial Sponsors
• Contractor sponsors