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Project Financing Introduction

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Project financing involves mobilizing debt, equity, hedges and guarantees through a newly organized company or partnership to fund a project. It has benefits like minimizing equity commitment, negotiating risk sharing, and separating project liabilities from corporate balance sheets. However, it also has disadvantages like delays in closing financing, higher risk premiums, and lenders requiring greater oversight. Major participants typically include sponsors, a project vehicle, construction contractors, lenders, insurance providers, off-takers, operators, and sometimes resource suppliers or government entities.

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Project Financing Introduction
Project Financing
-Introduction -Benefits & Disadvantages -Major Participants
Project Financing Introduction
- The mobilization of debt, equity, hedges and a variety of limited guarantees through a newly organized company , partnership or contractual JV.
Project Financing Introduction
Project Financing Introduction
Benefits & Disadvantages -Delays in financial closing -Minimizing the equity -Higher risk premium for commitment to be associated loans delivered to anyone -Lenders insist on having particular project greater oversight of the -Negotiating risk sharing project - Segregation projects -Lenders view the liabilities from the insurance arrangements corporate balance sheet as part of the risk-sharing from accounting added cost on the perspective sponsor
Benefits & Disadvantages -Reducing taxes 1 entity - Documentation is not 2 lengthy and complex -Avoiding restrictive covenants on the corporate balance sheet arising from projects debt financing -Achieving diversification
Major Participants Sponsors Project Construction Vehicle Contractors Lenders Third Insurance Other Off- Party Providers Parties Takers Operator Resource Government Supplier
Sponsor
Project Financing Introduction
Project Vehicle
Project Financing Introduction
Construction Contractors
Project Financing Introduction
Lenders
Sukuk
Insurance Providers
Project Financing Introduction
Other parties
Project Financing Introduction
Participants Found In Many But Not All Project Finance Deals Off-taker
The entity that is single purchaser of all the project output subject to a formal contract The off-take agreement is designed frequently to permit the project vehicle to hedge against certain risks inflation-foreign exchange etc.
Third-Party Operator
Responsible for the O&M of the project When a third party operator is not used in a project, one of the sponsors may undertake this role.
Resource Supplier
Responsible for the delivery to the project of necessary fuel
Government
In industrialized countries the central government is rarely involved in project finance
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Project Financing Introduction