Project finance is an element within the larger field of project management. Many organizations around the world utilize project management to enable innovative processes, to plan, organize, and control strategic initiatives, to monitor enterprise performance, to analyze significant deviations, and to forecast their impact on the organization and project(s). Project finance is globally a multi-billion dollar business and the preferred alternative for financing infrastructure projects involving private investment.
The key to successful project financing lies in `structuring' the financing of the project with limited recourse to the sponsors, while providing sufficient credit support through guarantees or undertakings of a sponsor or a third party, so that lenders will be satisfied with the credit risk. Project finance is used in connection with raising large amounts of money for big-ticket, energy-related facilities. The term has come to be loosely applied to various forms of financing.
Project finance is the financing of long-term infrastructure and industrial projects based upon a complex financial structure where project debt and equity are used to finance the project. Usually, a project financing scheme involves a number of equity investors, known as sponsors, as well as a syndicate of banks which provide loans to the operation.
Project finance is an element within the larger field of project management. Many organizations around the world utilize project management to enable innovative processes, to plan, organize, and control strategic initiatives, to monitor enterprise performance, to analyze significant deviations, and to forecast their impact on the organization and project(s). Project finance is often known as off-balance sheet finance because the financing is arranged such that no one sponsor bears the majority of the project risk. If structured properly, the risk sharing feature allows the project sponsors to avoid listing the project on any of their corporate balance sheets. Project finance is possible where a firm, credit worthy purchaser of power enters into a long-term contract to purchase the electricity generated by the facility.
Project Finance is a mechanism of raising finance to fund the development of major industrial and infrastructure assets. Project finance debt is provided by lenders on the basis that repayment of the debt will come from the cash flows generated by the asset being financed.
Project finance is a fast-growing area of capital investment for major infrastructure and other large projects. Financing such projects as EuroDisney, airports, highways, tunnels, schools, hospitals, and other large projects presents a complex and interesting challenge that the specialty of project finance takes on wholeheartedly, combining financial engineering with legal and contractual expertise to develop various financing options. Project finance is used to build projects such as large-scale energy, infrastructure, toll roads, ethanol, and recycling projects, as well as many others. Project finance requires careful analysis and structuring of a wide variety of risks. Project finance is possible where a firm, credit worthy purchaser of power enters into a long-term contract to purchase the electricity generated by the facility.
Project finance is used for financing large equipment deliveries and project exports. The financing of these is often a complicated package which includes time-consuming negotiations. Project finance is used by private sector companies as a means of funding major projects off balance sheet. A typical project finance structure is outlined below.
Project finance is different from traditional forms of finance because the financier principally looks to the assets and revenue of the project in order to secure and service the loan. In contrast to an ordinary borrowing situation, in a project financing the financier usually has little or no recourse to the non-project assets of the borrower or the sponsors of the project. Project finance is a fast-growing area of capital investment for major infrastructure and other large projects. Financing such projects as EuroDisney, airports, highways, tunnels, schools, hospitals, and other large projects presents a complex and interesting challenge that the specialty of project finance takes on wholeheartedly, combining financial engineering with legal and contractual expertise to develop various financing options. Project finance is the generic term used to describe a project where the debt finance for that project is provided in reliance upon an assessment of the viability of the project. The lender's recourse is usually solely to the cash flow and, if necessary, the assets of the project, including contracts for the supply of raw materials, the sale of the finished product and a host of other arrangements relating to the continuing operation of the project.
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