Use Of Project Financing Research Articles

Возможности проектного финансирования в развитии инфраструктуры страны

The article considers project financing as an investment tool for financing infrastructure projects since recently this approach is quite relevant in Russia. The analysis revealed both the strengths for the development of project financing and the factors constraining its application. In the research, the author identified some problems connected with the participants of project financing as well as with the use of debt instruments. In project financing, the key role is played by the generated cash flow. An important condition for its compliance with forecast parameters is not only the improvement of the corporate management system but also the creation of a satisfactory system for monitoring and operational control over the implementation of projects through the optimization of all processes. It is also important to improve the system of benefits and guarantees for investment projects using project financing The article formulates measures, the adoption of which can contribute to wider and more effective use of project financing for implementing infrastructure projects.

Use of Project Financing in Gas Field Development: Retrospective Analysis (Based on Koshegable Gas Condensate Field Development Materials)

Use of Project Financing in Gas Field Development: Retrospective Analysis (Based on Koshegable Gas Condensate Field Development Materials)

Project Financing as a Promising Form of Investment Organization

The world practice of projects financing is growing rapidly, this is due to the fact that investments in the state budget or investor's own funds become insufficient for the implementation of infrastructure projects. The article is devoted to the study of such a form of investment organization as project financing. The approaches to the definition of the term «project financing» are considered and the principles characterizing this form of financial structuring of projects are determined. A comparative analysis of project financing with other forms of financing investment projects is carried out. The advantages and disadvantages of project financing in terms of state (budget) financing and corporate financing are revealed. Differences between project financing and venture financing are highlighted. The main factors contributing to the choice of project financing as a form of organizing investments in large capital-intensive projects, as well as factors hindering the widespread use of project financing in the economy of the Russian Federation, are substantiated.

Project finance in Russia: The status, international practices, and public-private partnership

Subject This article considers the issues related to project financing in Russia, its current status, foreign practices in this area, as well as in the context of public-private partnership. Objectives The article aims to explore the current state and development of project financing in Russia and foreign countries, analyze and identify risks, and consider trends in the further development of project financing. Methods For the study, I used the methods of comparative, logical, and statistical analyses, and graphical interpretation of information. Results The article defines project financing, identifies risks, and denotes trends in its global and domestic development. Conclusions and Relevance The introduction and application of public and market management models, or their combination, may be an incentive for further development of project financing. Today, the most promising direction is the use of project financing as a method of financing investment activities. The results of the study are theoretically relevant for further research into the financing of infrastructure projects in Russia.

Trends of Project Finance in the World Market and in Arab Countries

Over the years, project finance has proved to be one of the innovative techniques in bridging the resource constraints faced by most governments in financing large developmental investments. In this regard, the current state and dynamics of indicators of the world project finance market, as well as the role and place of the Arab economy in this global phenomenon, are interesting. The aim of the article is to review the features of project financing in the world and in Arab countries, mainly in the GCC region. The article employed the methods of statistical analysis, regression modelling. The author analysed historical data on the volume, dynamics, and structure of project financing in the GCC countries. The study revealed the use of project finance in 18 Arab countries, primarily concentrated in three areas: energy and water supply, petrochemicals, and the oil and gas industry. The author concluded that there is a growing tendency to use Islamic project finance structure.

АНАЛИЗ И ОБОБЩЕНИЕ ОПЫТА ПРОЕКТНОГО ФИНАНСИРОВАНИЯ ПРОМЫШЛЕННЫХ ПРЕДПРИЯТИЙ

The article describes specific features of project financing in the Russian Federation. It is stated that in Russia in recent years new investment projects have been launched, which are expected to be implemented using the project financing method, which indicates a favorable investment climate and the state's readiness to develop and improve this mechanism. Most of the projects are related to the industrial sector; in this regard, the analysis of projects and a synthesis of experience in the application of project financing have been conducted. Projects that were not always successful were analyzed, as well as an example of a project implemented with the assumption of design errors, in which the basic principles of project financing were not applied, but the result of its functioning turned out to be positive. According to the results of the analysis, the author grouped the general trends of project implementation, formulated the conditions that confirm the use of project financing, and identified key errors in the implementation of large-scale investment projects involving industrial enterprises. Priority sectors of the economy are defined, in which large-scale investment projects are most often developed and implemented (oil and gas extraction, processing and transportation). A review of Russian experience of project financing made it possible to understand the level of prevalence of this method and the effectiveness of its use, as well as to identify the main factors constraining and stimulating the use of project financing by industrial enterprises. Taking into account these factors will contribute to the formation of new directions and the development of methods for stimulating project financing for their successful use in the implementation of large-scale investment projects.

What is project finance?

Project finance is the process of financing a specific economic unit that the sponsors create, in which creditors share much of the venture’s business risk and funding is obtained strictly for the project itself. Project finance creates value by reducing the costs of funding, maintaining the sponsors financial flexibility, increasing the leverage ratios, avoiding contamination risk, reducing corporate taxes, improving risk management, and reducing the costs associated with market imperfections. However, project finance transactions are complex undertakings, they have higher costs of borrowing when compared to conventional financing and the negotiation of the financing and operating agreements is time-consuming. In addition to describing the economic motivation for the use of project finance, this paper provides details on project finance characteristics and players, presents the recent trends of the project finance market and provides some statistics in relation to project finance lending activity between 2000 and 2014. Statistical analysis shows that project finance loans arranged for U.S. borrowers have higher credit spreads and upfront fees, and have higher loan size to deal size ratios when compared with loans arranged for borrowers located in W.E. On the contrary, loans closed in the U.S. have a much shorter average maturity and are much less likely to be subject to currency risk and to be closed as term loans.

Models of Financing of Natural Monopolies: Budget, Corporate and Project Financing

Subject. To ensure sustainable economic development of the country, it is necessary that natural (infrastructure) monopolies develop at a faster pace than other sectors of the economy. The state historically played a major role in financing the infrastructure facilities building, however, in the current tense economic situation a trend is to reduce government spending. In these conditions, for natural monopolies, evaluation and selection of the most effective sources of financing their investment activities become of special importance. Goals. Comparative analysis of typical models of financing of natural monopolies — budgetary, corporative and project financing. Identifying their advantages and disadvantages, and identify areas of the most appropriate and effective application. Methodology. The researching is based on a dialectical approach. The researching used systemic, comparative and institutional approaches. Results. Each of the considered models of financing has its advantages and disadvantages, and also is characterized by its specificity of use. For short-term investment projects, as well as renovation projects for existing infrastructure, it is advisable to implement a corporative financing model. Budgetary financing is applicable for projects with a long payback period and projects with conditionally “negative return on investments” (projects with very long payback period). The model of “project financing” is most effective for the implementation of large-scale projects with medium or long-term payback. Conclusions. It is shown that, in the current economic conditions, the implementation of most of the infrastructure tasks included in the strategy of Russia’s economic development can be achieved mainly through the use of project financing. However, its progress in Russia is hindered by the underdevelopment of the legislative base.

부동산 개발사업 평가기준 및 지표 개발

Real estate market has rapidly grown by active use of project financing in the early 2000s. However, many projects have been in trouble due to global economic recession after that period. It is mainly because those projects were pushed forward a business without comprehensive business feasibility analysis. This paper investigated current evaluation system for real estate development projects and then introduced new evaluation system including evaluation factor and criteria for real estate development projects to prevent implementation of the project without business value and to be able to evaluate potential projects in objective manner. This new evaluation system for real estate development projects can be applied to any type of real estate development projects by modifying evaluation items and weighting factor in accordance with the type and characteristics of project. Through the new evaluation system, the evaluation process for real estate development projects will be able to be standardized, be consistent, and the results of evaluation can be accumulated in consistent way.

Economic assessment of solar and conventional biomass gasification technologies: Financial and policy implications under feedstock and product gas price uncertainty

Four configurations of a novel solar-heated biomass gasification facility and one configuration of conventional biomass gasification are analyzed through financial and policy scenarios. The purpose of this study is to determine the potential financial position for varying configurations of a novel technology, as compared to the current state-of-the-art gasification technology. Through the use of project finance and policy scenario development, we assess the baseline breakeven syngas price (normalized against natural gas prices and based upon annual feedstock consumption), the sensitivity of major cost components for the novel facilities, and the implications of policy levers on the economic feasibility of the solar facilities. Findings show that certain solar configurations may compete with conventional facilities on a straightforward economic basis. However, with renewable energy policy levers in place the solar technologies become increasingly attractive options.

Project finance and investments in risky environments: evidence from the infrastructure sector

Purpose – Privately financed infrastructure projects commonly use a project finance structure. Project finance is expected to facilitate investment flow in risky environments. The objective of this paper examines the link between the use of project finance and investments in risky environments. Design/methodology/approach – Project Finance International database has been used as the data source for this study. 3,372 transactions from power, oil and gas, transportation, telecommunication, and water supply sectors have been considered means analysis and multi-variate regression models have been used in the analysis. Findings – The average project cost in a developing country was higher than that of developed countries. Gearing ratio, however, was higher in the developed countries. This indicated that the projects had a lower level of inherent risk, which enabled them to get funded at high gearing levels. The proportion of foreign banks in the syndicate was higher in the developing countries, which indicated that the use of project finance has helped to attract investment from foreign investors. Practical implications – Practitioners and project development companies in the developing countries should actively consider using project financing technique for achieving financial closure of large infrastructure projects. Simultaneously, policy makers should create appropriate supporting institutional framework (regulatory, legal, contractual arrangements) that supports the use of project finance. Originality/value – As far as the authors know, this study uses a dataset that has not been used in the previous studies. The results of this paper strengthen the understanding of project financing.

Infrastructure and Project Financing in Italy: The (Possible) Role of the Regulation

There has been a significant increase in project financing in the public sector in Europe in the past decade, benefiting the implementation of infrastructure projects. In Italy, project financing is still much more limited than in such countries as Spain and the UK: the projects funded are smaller and the sectors involved are less appropriate. Based on the economic literature, European initiatives and international comparisons, the paper examines the aspects of the regulations that could encourage the appropriate use of project financing and considers the problems with the Italian regulations, proposing some corrective measures. The main limitations involve: i) uncertainties over the allocation of administrative and regulatory risks; ii) poor procedures for selecting the private contractors; iii) relative lack of attention to the contract terms; and iv) inadequate safeguards to ensure the bankability of the projects.

Political Risk, Development Banks and the Choice of Recourse in Syndicated Lending

How should loan contracts to finance projects in countries with high political risk be designed? We develop a double moral hazard model in which the bank’s incentive to mitigate political risk is highest with a non-recourse project finance loan, while for the firm’s incentive to manage operational risk it is best to have a full-recourse loan. We predict that the use of project finance increases with both the political risk of the country in which the project is located and the lender’s influence over this political risk exposure. Furthermore, the use of project finance should decrease as the economic health and corporate governance provisions of the borrower’s home country improve. We test these predictions with a sample of 4,549 loans made to borrowers in 90 countries. We find overall support for our model and provide evidence that multi-lateral development banks indeed represent a “political umbrella”.

Project Finance as a Risk-Management Tool in International Syndicated Lending

We develop a double moral hazard model that predicts that the use of project finance increases with both the political risk of the country in which the project is located and the influence of the lender over this political risk exposure. In contrast, the use of project finance should decrease as the economic health and corporate governance provisions of the borrower’s home country improve. When we test these predictions with a global sample of syndicated loans to borrowers in 139 countries, we find overall support for our model and provide evidence that multilateral development banks act as “political umbrellas†.

How Banks Price Loans to Public‐Private Partnerships: Evidence from the European Markets

This article presents the findings of a recent analysis of the drivers of credit spreads in project finance loans to public‐private partnerships, or PPPs, an increasingly popular form of procurement worldwide. PPPs are project finance transactions in which project output is a function of government policy in fields such as health, transport, and education. Because of the controversy that now surrounds the use of private finance in PPPs, understanding the determinants of the cost of debt in such highly leveraged projects is of interest to policy makers as well as originators and participants in the transactions.Using a large sample of credit spreads on debt extended to PPP projects in Europe over the past 15 years, the authors' study reports that market risk is the only significant driver of PPP debt credit spreads in a large portfolio of PPP debt; at the same time, technical risks appear to be diversified “away” by the structuring of the projects. Most important, and contrary to standard debt pricing models, factors like loan size, maturity, and leverage do not show up as significant determinants of the cost of debt in PPPs, reflecting a high degree of confidence by lenders that loans will be repaid or recovered. These results support the view that the use of project finance in PPPs is premised on effective risk management as well as confidence in the private sector's ability to manage public projects.

Political Risk in Syndicated Lending: Theory and Empirical Evidence Regarding the Use of Project Finance

Why do banks grant project finance loans to borrowers in risky countries? Our double moral hazard model predicts that the use of project finance increases with the degree of managers’ moral hazard, projects’ political risk and banks’ influence over the political risk exposure of projects. We test these predictions with two samples of project finance loans from 1980 to 2003, one global sample and one sample of loans to borrowers in transition countries. We find empirical support for our predictions regarding moral hazard and political risk. With the exception of the IFC, the bank’s role is, however, insignificant.

Blackout of Project Finance?

Will the recent Blackout be the Three Mile Island of the project finance of deregulated electrical assets or the genesis of new opportunities? The answer to this question is complex. Despite the clearly identified need for enhanced transmission facilities, growth of the transmission structured and project finance market will depend largely on satisfactory reform of the regulatory environment. Despite a possible perceived need for supply redundancy, enhanced use of project finance for generation also will depend on regulatory reform. Distributed generation (DG) could receive an impetus from the Blackout, but targeted public policy may be needed to support DG project finance. Unless the Blackout is taken as a signal to nationally modify the “business as usual” profile of the U.S. power industry, which has resulted at best in benign neglect and a confusingly hybrid regulatory system, it will do little or nothing to affect the prospects for merchant generation, may not lead to the highly accelerated use of project and structured finance to facilitate transmission and distribution, and could presage a period of delay, both before and after regulatory issues are worked out fully.

Disclosure of reserve quantum in the extractive industries

We explore why some firms in the extractive industries disclose mineral reserve quantum in their annual reports and others do not. We propose that the firms’ reserve disclosure policies are a function of the extent of information asymmetries, as well as information production, litigation and proprietary costs. More specifically, we propose that a firm's decisions to disclose reserves in the annual report are a function of the stage of the firm's operations, use of project financing, and the cost of measuring reserves. Empirical tests are confirmatory.

Disclosure of reserves in the annual reports of Australian mining and petroleum firms

This article investigates why some firms in the extractive industries disclose mineral reserves in their annual reports and others do not. It uses an efficient contracting framework to propose that the firm's disclosure policies are likely to be driven by the constraints of contracts with claimants. Managers adopt the policies that minimize the cost of contracting with claimants. A firm's decision to disclose reserves in the annual report is likely to depend on its asset structure, debt financing, and the firm's monitoring process. The determinants of reserve disclosure are hypothesized to be the stage of the firm's growth, use of project financing, and the use of a quality auditor. Empirical tests indicate that, for the sample firms, the stage of growth and project financing are significant. Further, large firms are more likely to disclose reserves compared to their smaller counterparts.

PETROZUATA: A CASE STUDY OF THE EFFECTIVE USE OF PROJECT FINANCE

Companies are increasingly using project finance to fund large‐scale capital expenditures. In fact, private companies invested $96 billion in project finance deals in 1998, down from $119 billion in 1997 largely due to the Asian crisis, but up more than threefold since 1994.The decision to use project finance involves an explicit choice of organizational form as well as financial structure. With project finance, sponsoring firms create legally distinct entities to develop, manage, and finance the project. These entities borrow on a limited or non‐recourse basis, which means that loan repayment depends on the project's cash flows rather than on the assets or general credit of the sponsoring organizations. Despite the non‐recourse nature of project borrowing, projects are highly leveraged entities, with debt to total capitalization ratios averaging 60–70%.Petrozuata, a $2.4 billion oil field development project in Venezuela, is a recent example of the effective use of project finance for several reasons. First, the analysis shows a typical setting where project finance is likely to create value, that of a large‐scale investment in Greenfield assets (in this case, wells, pipelines, and upgrader) that can function as a stand‐alone economic entity and support a high leverage ratio. Given the nature of this investment, one can think of project finance as venture capital for fixed assets, except that the investments are 100 to 1000 times larger and financed primarily with debt rather than equity.Besides highlighting the types of assets appropriate for project finance, this article illustrates the sizeable transactions costs associated with structuring a deal as well as the full range of benefits accruing to project sponsors. The structure allows sponsors to capture tax benefits not otherwise available, reduces information costs for creditors and other investors, and lowers the overall cost of financial distress. The combination of high leverage, concentrated equity ownership, and direct control in project finance also addresses a wide range of incentive problems that destroy value in diversified companies.Analysis of the explicit contractual terms of the deal reveals a careful allocation of project risks in an attempt to elicit optimal behavior by each of the participants. As illustrated in the Petrozuata case, limiting completion and operating risks are important undertakings. But project finance is most valuable as an instrument for managing sovereign risks. Indeed, the ability of project finance to limit sovereign risk is the one feature that cannot be replicated under conventional corporate financing schemes.