Corporate Business Finance
Corporate Business Finance
Seminar 5
Project Finance
Lauren Leigh Essaram
207507339
Ruvimbo Mukorera
206525531
27 September 2010
Submitted in partial fulfilment of the duly performed requirement of International Business Finance, School of Economics and Finance, University of KwaZulu-Natal
Abstract
Non-recourse financing has grown in popularity, especially in developing countries. It has done so more specifically in the basic infrastructure, natural resources and also in the energy sectors. Large-scale investments are mostly financed by project finance, due to the costs and complexities that face the standard sources of finance. The main feature of Project Finance is in the accurate estimation of cashflows and a precise risk analysis in order to provide high leverage and ensuring the separation of the project from that of its sponsors. Project finance may not be easy to implement in developing countries due to the risks faced by investors in those economies. Therefore contractual and structured financing elements are introduced. The following seminar aims to provide an explanation and discussion of Project finance and draws on the conclusion that when compared to traditional corporate finance, project finance is a much better technique and financing mechanism to use, as it mostly reduces agency costs.
Table of contents Page Number 1. Introduction 1 2. Project Finance-What does it entail 2 3. The organisational structure 4 1. Project constituents 5 2. Non-Recourse debt and limited recourse debt 6 3. How a project company raises debt and Equity 7 4. Sources of funds 8 1. How to value a project 9 5. Project Finance vs Corporate Finance 10 1. Project Finance and Public Private Partnerships 14 6. The rationale for using project finance 15 7. Conclusion 20 References 21
1. INTRODUCTION
Project finance
Seminar 5
Project Finance
Lauren Leigh Essaram
207507339
Ruvimbo Mukorera
206525531
27 September 2010
Submitted in partial fulfilment of the duly performed requirement of International Business Finance, School of Economics and Finance, University of KwaZulu-Natal
Abstract
Non-recourse financing has grown in popularity, especially in developing countries. It has done so more specifically in the basic infrastructure, natural resources and also in the energy sectors. Large-scale investments are mostly financed by project finance, due to the costs and complexities that face the standard sources of finance. The main feature of Project Finance is in the accurate estimation of cashflows and a precise risk analysis in order to provide high leverage and ensuring the separation of the project from that of its sponsors. Project finance may not be easy to implement in developing countries due to the risks faced by investors in those economies. Therefore contractual and structured financing elements are introduced. The following seminar aims to provide an explanation and discussion of Project finance and draws on the conclusion that when compared to traditional corporate finance, project finance is a much better technique and financing mechanism to use, as it mostly reduces agency costs.
Table of contents Page Number 1. Introduction 1 2. Project Finance-What does it entail 2 3. The organisational structure 4 1. Project constituents 5 2. Non-Recourse debt and limited recourse debt 6 3. How a project company raises debt and Equity 7 4. Sources of funds 8 1. How to value a project 9 5. Project Finance vs Corporate Finance 10 1. Project Finance and Public Private Partnerships 14 6. The rationale for using project finance 15 7. Conclusion 20 References 21
1. INTRODUCTION
Project finance
References: [pic] Source: Sorge (2004: 95) Table 1: Project vs. Corporate finance (as adapted from Henrique and Sabal, 2006: 8) |ITEM |CORPORATE FINANCE |PROJECT FINANCE |