INDIAN INSTITUTE OF MANAGEMENT KOZHIKODE

Post Graduate Programme in Management

Course Outline

Course Code and Course Title PGP2F-010 Project Finance

Course type Elective
Pre-requisites (if any) Nil
Course Credit 3
Total no. of sessions 1*30
Session Duration 1 hours
Term VI
Year and Batch PGP-II, 2020-2021 PGP 23
Sections (if any) 1

Instructor(s) Pankaj Kumar Baag

Contact Details baagpankaj@iimk.ac.in
Office 21, Faculty Block I
Consultation Hours By Prior appointment only

Introduction
Project finance refers to financing arrangements where the terms and conditions of the debt
are directly related to the specific purpose for which the proceeds will be used. In such deals,
lenders often have to rely only on the cash flows from those projects with limited or no
recourse to the broader balance sheet of the sponsoring corporation. Resultantly, such an
arrangement is often referred to as “structured finance” since the repayment schedule and
covenant packages for this debt are likely to reflect specific project cash flows or other
characteristics of the assets being financed. Project financing is used by asset intensive
industries as a way of mitigating risk. It is a popular method of financing cross-border
projects, particularly in developing countries. For some assets, project financing is driven by
the ability to capture tax advantages that are tied to specific assets or to particular issuers of
debt (such as municipalities). Capital for project financing is provided through bank lending,
public debt offerings, lease financing, and a wide range of governmental and
quasigovernmental agencies.

The course should broadly cover issues related to (i) choice between corporate and project
finance, sources of project finance, valuing projects, managing project risk and structuring of
the financing deal- Revenue requirements, Capital structure, debt syndication, securitization,
(ii) Political, legal and market related issues pertaining to disclosures, supports and
guarantees in infrastructure related projects (iii) alternative sources of finance: Conventional
and non conventional (Infrastructure Debt Funds, Take out financing and issues related to
debt restructuring).

Learning Outcomes/Course Objectives

The course aims at helping the student apply concepts of corporate finance in the context of
projects such as:

• Application of Advanced appraisal tools to evaluate projects

• Understand and apply concepts of refinancing and syndicated borrowing to
raise capital at competitive rates
 • Understand and appreciate the importance of structuring the project so as to
minimize the political, legal and market risks.

Textbooks and Learning Materials

Text Book(s) : Nil

Addl. Readings:

1. Book: Project Finance: Asset Based Financial Engineering 3ed by Finnerty, J.D.,
Wiley (1JDF)
2. Reading: Characteristics of alternative price control frameworks: an overview by
Chris Decker (2CD)
3. Reading: Auction Theory for the new economy- Note by L.M. Ausubel (3LM)
4. Reading: The Anatomy of Construction Risk: Lessons From a Millennium of PPP
Experience-Note by Bain, Robert, and Jan Willem Plantagie. (4BR)
5. Reading: Role of Institutional arrangements in financing project companies in Asia-
Note by Devapriya and Alfen (5DA)
6. Projects- Planning, analysis, selection, financing, implementation and Review By
Prassanna Chandra latest edition McGrawHill (6PPC)

Cases: HBR:

1. Note: An overview of project finance and infrastructure finance- 2014 update --

214083-PDF-ENG
2. The Chad Cameroon Petroleum Development and Pipeline Project (A) --202010-
PDF-ENG (B,C,D,E --addl. to be provided separately)
3. Australia-Japan Cable: Structuring the Project Company -- 203029-PDF-ENG
4. Chase’s Strategy for Syndicating the Hong Kong Disneyland Project Loan (A) --
201072-PDF-ENG (B --addl. to be provided separately)
5. Iridium LLC -- 200039-PDF-ENG
6. Basel II: Assessing the Default and Loss Characteristics of Project Finance Loans (A)
-- 203035-PDF-ENG (B --addl. to be provided separately)
7. Project finance for Autopistas del Centro -- NA0266-PDF-ENG
8. Poland’s A2 Motorway -- 202030-PDF-ENG
9. Airbus A3XX: Developing the World's Largest Commercial Jet (A) -- 201028-PDF-
ENG (B --addl. to be provided separately)
10. Bidding for Antamina -- 297054-PDF-ENG (addl note to be provided separately)
11. Note: Economic Framework for Assessing Development Impact -- 202052-PDF-ENG
12. Petrolera Zuata, Petrozuata C.A -- 299012-PDF-ENG
13. Politics, institutions and project finance: The Dabhol power project --HKU707-PDF-
ENG
14. Note: Equator Principles: An Industry Approach to Managing Environmental and
Social Risks -- 205114-PDF-ENG
15. Hamilton Real Estate: Confidential Role of Information for the CEO of Estate One --
905052-PDF-ENG
16. Hamilton Real Estate: Confidential Role of Information for the Executive VP of Pearl
Investments -- 905053-PDF-ENG
17. Financing the Mozal Project -- 200005-PDF-ENG
18. Cheniere’s LNG Liquefaction strategy: pushing the boundaries of the project finance
debt market -- IN1375-PDF-ENG
Pedagogy Used/Learning Process

The course would be delivered through a series of relevant cases. Each case study would be
analysed by the class and a group in random would be chosen to present the case analysis.
Each group before the class has to upload the respective ppt on VC which would be
evaluated. Marks will be awarded for presentation, only if the student is present during the
participation.

Evaluation Components/Assessment of Student Learning

Components Weight (%) Description

Class 30% This is a case driven course and much of the learning
Participation & comes from the discussions in the class. In order to ensure
Assignments preparation for in class contribution to discussion,
participants are expected to upload the assignments before
the session begins. The assignments are assessed for the
quality and rigour of the analysis.
End Term 35% This component evaluates the collective application of
concepts and techniques covered in the course.
Projects 35% This component tests the ability of the participant to apply
the tools, techniques and concepts learnt in the course to
prepare a project finance report.

Session Plan

Session Module Topic Chapter No. / Reading

1-14 1 Introduction to project finance;
difference from corporate finance;
regulatory pricing
2 Structuring projects, leveraging
projects finance for developments,
financing projects
3 Analysing projects viability, Project
appraisal, Impact of refinancing on
project appraisal
4 Managing risky projects, Auction
design and strategy- principle,
practice, impact on asset valuation
Negotiation, project cost estimation
material / Cases
Ch 1, 2, 3, 4 (1JDF) (soft copies
to be provided)
Note-Case 1
Ch 7, 8 (JDF) and Reading
(DA5)
(soft copies to be provided)
Structuring-Case 2, 3, 17
Financing-Case 4, 5, 6
Ch 5, 9, 10 (JDF)
(soft copies to be provided)
Analysing viability-Case 4, 7, 8
Ch 13, 14 (JDF) and Reading
(LM3) (BR4)
(soft copies to be provided)
Valuing-Case 9, 10
Note-Case 11, 14
Risky projects-Case 12, 13, 17,
18

Case (15, 16) together

15-18 5 Presentations-Readings & Notes Readings and Notes-cases
19-20 6 Project Finance report preparation Book: 6PPC
discussion/practical Templates (XLS)
Sample report
To be provided
21-30 7 Assignment presentation and project
report presentation

Additional Instructions (if any)

Project Guidelines

Max no. of people in the group: 6

Objective: This course is intended to be an applied course and hence live cases should be
preferred. In the process, one should be able to appreciate and understand the finer aspects of
Project Finance.
Time Line: By the end of third session, the group shall submit a three page proposal with
respect to preparing a project finance report. Thereafter, the project report will have to be
submitted in three stages: after 6th session; after 9th session; and after 12th session. The final
report submission and presentation will be scheduled during 13th; 14th & 15th session.
Evaluation: Of the 35 per cent weightage 5 percent is for the proposal, 10 per cent for the
presentation and 20 percent for the report. Class participation in project carries 15%
weightage (individual) will be added to the project weightage.

The Presentation has to be made by all the members of the group; absentees do not get marks
for the project presentation.

Class participation

Presentations and discussions

Readings: 2CD, 3LM, 4BR, 5DA and HBR case and notes: 1, 6, 11, 13, 14, 15, 16 are part of
class participation presentations and discussions to be presented by one group and discussed
by two other groups.

The Presentation has to be made by all the members of the group; absentees do not get marks
for the presentation as well as for discussions.

Assignments

Presentations

HBR cases

The Presentation has to be made by all the members of the group; absentees do not get marks
for the presentation
Others

a. Students are expected to be above reproach in all scholastic activities and disciplinary
issues. Students who engage in scholastic dishonesty or indiscipline are subject to
disciplinary penalties.
b. Students are expected to be in the class on time. Late entry will not be permitted.
c. Laptops should not be used in the class without being instructed to do so by the
instructor.
d. Mobile phones should not be brought to the class room
e. The instructor reserves all rights to fine-tune / modify the above mentioned session plan
and the grading scheme as may be required.