What is project

• Temporary

• Tangible outcome

• Progressively elaborate
 Why Project—A source of Asset
• Creation of New Asset
• Short-term
• Long-term
• If created asset is more than the expectations of the
investors—Growth Asset, and is accumulated by
• Economies of Scale
• Economies of scope is related lines
• Economies of scope is unrelated field
• In new market
 Risks associated with a project
• Symmetric Risk
• Stimulant
• Asymmetric Downside Risks
• If satisfied not benefit the project cash flow
• If not satisfied negatively affect the project cash flow
• Binary Risks
• If present causes project failure
• If absent facilitate the project
Project Financing
• Definition
• Legally separated from sponsors

• Own cash-flow

• Appraisal by independent party

 Characteristics of Activities under Project
Financing
• Longer Duration
• Fund Intensive
• Guaranteed cash flow
• Low Technological Risk
• Valuation
• Based on cash-flow not collateral
• Can sustain high leverage ratio
• Tax Benefits
• Arrangement of funds
• Trust based funding
• Ready to handover the control to funding agency
Why someone prefers project financing
• The sponsor

• The banking system

• The top manager

 Funding through banking system
• Basel IV requirements
• https://www.youtube.com/watch?v=1XtnXtJMURc
 Financing alternative
• Equity

• Term Loan

• Revolving Credit Facility

 Dominant form of Loans
• Recourse Loan

• Non-recourse Loan

• https://www.youtube.com/watch?v=MJ1ydcKd5og