LIMITED/NON RECOURSE PROJECT FINANCE

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LIMITED/NON RECOURSE PROJECT FINANCE
INTRODUCTION



Introduction to Project Finance Presenter


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PROJECT FINANCE

• Introduction to Project Financing
• Project Financing
• Public Finance
• Corporate Finance (B/S or Secured Assets or
  Preferential Claims outside the ring-fenced
  project structure)
• Limited/non recourse
• Hybrid
• Ring-fenced or not
• Limited recourse (limited recourse to sponsor B/S
  or Assets) and
• Non-recourse Project Finance (Cash flushed
  projects from a banks perspective)

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FINANCING OF PPP PROJECTS - Public Finance

• Raising and contributing funds from the public
  either through
• Taxes and tariffs
• Public Borrowing (Sovereign guarantees/bonds/notes
  )
• Both
• To finance asset creation (infrastructure)
• Service provision

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Public Finance
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FINANCING OF PPP PROJECTS

• Project Finance
• Project Finance (B/S)
• Project Finance (Secured assets/pref claim)
• Project Finance (Limited recourse/non-recourse)
• Ring-fenced
• Security in Project except for Limited Liability
  i.e. Standby Fac/ Performance Bonds/Completion
  Guarantees
• Stand Alone after Construction Period except for
  incidents identified up-front i.e. Maintenance or
  Refurbishment Spikes etc.
• Hybrid

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FINANCING OF PPP PROJECTS - Corporate Finance

• Financing of PPP projects
• Corporate Finance (B/S)
• Security
• Recourse to the Balance Sheet of a Participant
• Assets outside of the Project
• Preferential Claims

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Corporate Finance

• Raising finance on the basis of a Companys
  existing financial strength, also termed as
  direct lending or balance sheet financing
  could be rolled over into PF

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FINANCING OF PPP PROJECTS - Limited Recourse
Project Finance

• PPPs
• Capital intensive
• Leverages private sector money (debt and equity)
• PF structure optimises private sector
  participation
• Allows high debt levels - Cash Flow driven
• Cash flow determines debt levels
• Debt vs Equity risks
• Robust due diligence by Financing Institutions
• Project Cash flow/Cession of Rights/Legal
  Documentation Security
• Recourse to B/S of Participants for Limited
  Period
• Managerial skills and other Efficiencies

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FINANCING OF PPP PROJECTS Limited Recourse
Project Finance (continue)

• Logical and simple approach
• KIS
• Efficient way of mobilising private sector
  investment for large infrastructure projects no
  wants B/S hooked-up
• Efficient way of mobilising the debt financing
  from Financing Institutions
• Banks
• Institutional financiers
• DFIs

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FINANCING OF PPP PROJECTS Limited Recourse
Project Finance (continue)

• Project Finance (Limited recourse/non-recourse)
• Off-Balance Sheet
• Limited / non-recourse project finance
• Balance Sheets only until Project Completion
• Ring-fenced project cash flow
• Complex legal structures, but very logical
  approach
• Cash-flow driven
• Ratios DE / DSCR / LLCR / PLCR and ALL

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Generic Project Structure

• GOVERNMENT
• Concession Contract
• Licence Agreement

BEE/HDIs

• DEBT
• DFIs
• ECAs
• Commercial Banks
• Capital Markets
• 90 - 50

• EQUITY INVESTORS
• Project Sponsors
• Passive Equity
• Subordinated debt
• 10 - 50

SPV
CONSTRUCTION
DESIGN
OPERATIONS
MAINTENANCE
Performance based delivery and supported by
Sponsors
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GENERIC PROJECT STRUCTURE
EQUITY
DEBT
GOVERNMENT
PROJECT SPONSORS SPONSORS
SENIOR DEBT
PASSIVE EQUITY
SPV
SUBORDINATED DEBT MEZZANINE DEBT
SHAREHOLDERS LOAN SUB/DEBT
DESIGN
CONSTRUCTION
OPERATIONS
MAINTENANCE
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GENERIC PROJECT STRUCTURE RISK ALLOCATION -
EQUITY PARTICIPANTS
PROJECT SPONSORS SPONSORS
COMPLETION RISK
BIDDING AND DEVELOPMENT COST
PASSIVE EQUITY
SHAREHOLDERS LOAN SUB/DEBT
TECHNOLOGY AND TECHNICAL ASSISTANCE
RETURN on INVESTMENT
PARTICIPANT RISK i.e. OPERATOR FAILURE / BEE
FINANCING COST i.e. CHANGES TO INTEREST
RATES/HEDGING
ALLOCATION AND MITIGATION OF RISKS
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GENERIC PROJECT STRUCTURE RISK ALLOCATION -
LENDERS
SENIOR DEBT
Syndication Risk
Participants Risk
SUBORDINATED DEBT MEZZANINE DEBT
Foreign Exchange
Political Risk
Interest Rate/Hedging
Contract Risk
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GENERIC PROJECT STRUCTURE RISK ALLOCATION - DC
PARTICIPANTS
Site
Completion- time /cost
DESIGN
Management
Environmental i.e. pollution
CONSTRUCTION
Technology
Engineering
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GENERIC PROJECT STRUCTURE RISK ALLOCATION -
OM/FM PARTICIPANTS
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GENERIC PROJECT STRUCTURE RISK ALLOCATION -
GOVERNMENT
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GENERIC PROJECT STRUCTURE RISK ALLOCATION - SPV
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WATER TREATMENT PLANT - BOT
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FINANCING STRUCTURE
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LIMITED RECOURSE PF4PPPs

• Are you confused?
• It is difficult ..but
• Logical 25 financial, 25 legal, 25
  technical, and 25 common senese
• Keep it Simple Stupid (KISS) vanilla
  structure, no complicated other structuring
• Questions???

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Presenters Details