An Overview of Project Finance and Infrastructure Finance 2009 Update
For the exclusive use of B. Zhang, 2015.
9-210-061
REV: SEPTEMBER 30, 2011
BENJAMIN C. ESTY
ALDO SESIA
An n Overv view off Projecct Finan nce and d Infrasstructurre
Fin
nance—
—2009 Update
U
Th his note provides an intro oduction to th he fields of p project financce and infrasttructure finan nce as well as a a statistica al overview of o project-fina anced investm ments over th he last five y years. Examp ples of projecct-financed in nvestments in nclude the $1.4
4 billion Mozzal aluminum m smelter in M
Mozambique, tthe $4 billion n Chad-Cameeroon pipelin ne, the $6 billlion Iridium global satelliite telecommu unications sy ystem, the €900
9 million A2
A toll road in Poland, th he $18 billion n Papua New w Guinea liqu uefied naturaal gas
(LNG
G) project, the $20 billion Sa akhalin II gas field in Russsia, and the $22.8 billion Dab bhol power p project a in Ind dia. Globally y, firms financced $240 billiion of capitall expenditurees using projeect finance in 2009, down n from the all--time high of $409 billion in n 2008.
In the United States
S
alone, firms financed d $19 billion o of capital exp penditures ussing project finance loans and bonds in n 2009, down n from $39 billlion in 2008 aand $47 billio on in 2007. Th he economic crisis, which h began as a housing h crisiss in the U.S. in n 2007 and sp pread globally y in 2008 and d 2009, froze g global capita al markets, cu urtailed bank k lending, and d dramaticallly reduced p project financee lending. Fo or this reason n, it makes sense s to look k back at 2007, when thee credit mark kets were op pen and liqu uid, to underrstand the rellative importa ance of projecct finance. In the U.S., firm ms financed $447 billion of ccapital expen nditures using g project finan nce in 2007—much less th han the $1,1266 billion corpo orate bond m market, the $9
944 billion mo ortgage-backeed security market, m the $8898 billion assset-backed security market, and the $3
359 billion tax x-free municiipal bond ma arket. Yet
9-210-061
REV: SEPTEMBER 30, 2011
BENJAMIN C. ESTY
ALDO SESIA
An n Overv view off Projecct Finan nce and d Infrasstructurre
Fin
nance—
—2009 Update
U
Th his note provides an intro oduction to th he fields of p project financce and infrasttructure finan nce as well as a a statistica al overview of o project-fina anced investm ments over th he last five y years. Examp ples of projecct-financed in nvestments in nclude the $1.4
4 billion Mozzal aluminum m smelter in M
Mozambique, tthe $4 billion n Chad-Cameeroon pipelin ne, the $6 billlion Iridium global satelliite telecommu unications sy ystem, the €900
9 million A2
A toll road in Poland, th he $18 billion n Papua New w Guinea liqu uefied naturaal gas
(LNG
G) project, the $20 billion Sa akhalin II gas field in Russsia, and the $22.8 billion Dab bhol power p project a in Ind dia. Globally y, firms financced $240 billiion of capitall expenditurees using projeect finance in 2009, down n from the all--time high of $409 billion in n 2008.
In the United States
S
alone, firms financed d $19 billion o of capital exp penditures ussing project finance loans and bonds in n 2009, down n from $39 billlion in 2008 aand $47 billio on in 2007. Th he economic crisis, which h began as a housing h crisiss in the U.S. in n 2007 and sp pread globally y in 2008 and d 2009, froze g global capita al markets, cu urtailed bank k lending, and d dramaticallly reduced p project financee lending. Fo or this reason n, it makes sense s to look k back at 2007, when thee credit mark kets were op pen and liqu uid, to underrstand the rellative importa ance of projecct finance. In the U.S., firm ms financed $447 billion of ccapital expen nditures using g project finan nce in 2007—much less th han the $1,1266 billion corpo orate bond m market, the $9
944 billion mo ortgage-backeed security market, m the $8898 billion assset-backed security market, and the $3
359 billion tax x-free municiipal bond ma arket. Yet
References: Bruner, R., and H. Langohr. “Project Financing: An Economic Overview,” Darden School case No. 295-026-6, University of Virginia, 1995. Esty, Benjamin C. Modern Project Finance: A Casebook. Hoboken, NJ: Wiley, 2004. Finnerty, J. D. Project Finance Asset-Based Financial Engineering, 2nd ed. Hoboken, NJ: Wiley, 2007. Guasch, J. Luis. Granting and Renegotiating Infrastructure Contracts: Doing It Right. Washington, DC: WBI Development Series, World Bank, 2004. Nevitt, P. K., and Fabozzi, F. Project Financing, 7th ed. London, UK: Euromoney, 2000.