This book is presented in five chapters, each of which deals with a specific part of the project finance process. Lending book in the series, whereby the structuring of the project finance facility is linked to the marketing issues involved in a loan syndication. How much help is needed to support a financing is determined based on the unique characteristics of the project.
Margins may be higher than during other phases of the project to compensate for higher risks. The project sponsor may be required to provide guarantees to cover certain project liabilities or risks. This depends on the financing and operating structure of the project (which itself will be determined by a host of factors such as taxes, exchange controls, availability of security and enforceable requirements in the host country).
The contractor is the entity responsible for the construction of the project; insofar as the construction of a facility is part of it. The construction phase begins when the lender disburses funds for the construction of the project (according to the construction agreement, subject to the submission of appropriate withdrawal requests with supporting documentation such as completion certificates). Public opposition (through procedural challenges to permits and approvals) can lead to costly project delays.
In other words, information related to the details of the project being financed, as opposed to the borrower's financial condition. Project sponsors The identity, role and involvement of the project sponsors in the project is included. The sources of the funds required for the project are also explained, including debt and equity.
It includes the standard corporate-produced prose on the background and experience of the project sponsors. It is essential that these permits are transferable in order to maintain the purchase value of the project. Project profitability The projection of costs and returns determines the profitability and cash flow of the project.
The project's capital costs will be booked as an asset and depreciated over subsequent years. Project financing can therefore be subject to numerous subcontracts within the overall framework for project financing. This is to ensure that funds are not siphoned off for the benefit of the sponsors and weaken the project unit.
First, the project financing is in the early stage of the project when the risk is higher.
Generally accepted risk principles risk map
Direct credit risk Correlation risk Instrument Market liquidity risk Transaction risk Currency convertibility Credit equivalent Equity risk Major transaction Caution Execution error Change in credit rating.
Credit rating agency rating scales
AA A very strong ability to pay interest and repay principal and differs only slightly from the highest rated issues. A debt rated A has a strong ability to pay interest and repay principal, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. However, adverse economic conditions or changing circumstances are more likely to result in a weakened ability to pay interest and repay principal than in higher rated categories.
However, the issuer faces significant ongoing uncertainties or exposure to adverse economic conditions that may result in insufficient capacity to meet timely interest and principal payments. B Indicates greater vulnerability to default than BB, but currently the issuer has the ability to cover interest payments and principal payments. Adverse business, financial or economic conditions will impair the capacity or willingness to pay interest and repay principal.
CCC Indicates a currently identifiable vulnerability to default and dependence on favorable business, financial and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial or economic conditions, the company will likely be unable to pay interest and repay principal. CC The CC rating is generally applied to debt subordinated to senior debt. C Typically applied to debt subordinated to senior debt that has been assigned an actual or implied CC rating.
The UDU rating is also used when interest or principal payments are expected to be in default on the payment date and interest and/or principal or principal payments are overdue. A3 A satisfactory ability to make timely payments, although slightly more vulnerable to the adverse effects of changes in circumstances than higher rated obligations. However, this capacity can be damaged by changing circumstances or short-term setbacks. Questionable ability to pay.
Country risk criteria
To assess the elements of the preceding political and economic risk profile, the past five years of the following information should be incorporated. Net energy import/total energy consumption (%) Economic management. a) Consumer Price Index (b) Money Supply M1 (c) Money Supply M2 (d) Domestic Credit (e) Wage Index. f ) Unemployment rate (g) Budget deficit/GDP (%) (h) Public expenditure/GDP (%) Public finances. a) Current income (b) Current expenditure (c) Operating balance (d) Net investments (e) Budget balance (f ) Non-budget balance (g) Domestic financing (h) Foreign financing External payments. i) Local currency/USD (ii) Local currency/SDR. ii) Non-food agriculture (iii) Non-fuel mining and metals. v) Machinery and equipment (vi). Other processed goods d) Composition of exports (%). ii) Non-food agriculture (iii) Non-fuel mining and metals. v) Machinery and equipment (vi).
Short-term capital flows (1) Public. ix) Errors and omissions (x) Reserve movements. xi) Current account balance/GDP (%) (xii) Current account balance/exports (%) (f ) International reserves. i) Central bank reserves, less gold. ii) Central bank gold reserves (millions of troy ounces) (iii) Reserves, rest of banking system. f). Net foreign assets of banking system (vi) Imports (%). g) Foreign Debt (i) Long-term debt. iii) Foreign debt/GDP (%) (iv) Debt service payments. v) Debt service payments/export (%) (vi) Debt service schedule.
World Bank country categories
63 Faroe Islands High: non-OECD debt not classified 64 Fiji East Asia & Lower Middle Less debt. 113 Macao, China High: non-OECD debt not classified 114 Macedonia, Europe & Lower Middle Less debt.