Essay
Project Finance and Private Public Partnership in financing logistics infrastructure.
Arturo Capasso
Università degli Studi del Sannio
Introduction
Finance scholars acknowledge a clear-cut distinction between corporate finance and project finance. The two techniques are considered as basically different approaches to the problem of raising debt to fund capital investments. In corporate finance lenders assess the creditworthy of a whole company, evaluating the going concern, the full range of projects in place, and the cautional value of all the assets. The amount to lend and the risk-spread are decided on a global evaluation of the firm’s economic and financial situation. In project finance, the goal is the implementation of a specific project. Lenders typically finance a special purpose vehicle for the development and construction of a particular project, looking to cashflows and project’s assets as sources of payment for their loans, rather than to the credit ratings of the project sponsors.
Historically project finance was widely used in financing transport and logistics infrastructure, like railways or channels. More recently, in the past decades, there has been a new wave of global interest: large amounts of debt have been raised to finance projects like motorways, distriparks, maritime ports, intermodal logistic platforms. These infrastructures are built, owned and operated by special purpose vehicles (SPV), organized for that single project and financed mainly by debt. In many cases, SPVs are not wholly owned by private investors since governments, public authorities and international organizations take equity stakes in them, creating private-public partnerships (PPP).
This brief note will not explore all the technical aspects of project finance, that have been extensively covered by academic scholars and practitioners in a wide literature on this subject . The focus here is on a few particular issues, related to the adoption of project financing
Arturo Capasso
Università degli Studi del Sannio
Introduction
Finance scholars acknowledge a clear-cut distinction between corporate finance and project finance. The two techniques are considered as basically different approaches to the problem of raising debt to fund capital investments. In corporate finance lenders assess the creditworthy of a whole company, evaluating the going concern, the full range of projects in place, and the cautional value of all the assets. The amount to lend and the risk-spread are decided on a global evaluation of the firm’s economic and financial situation. In project finance, the goal is the implementation of a specific project. Lenders typically finance a special purpose vehicle for the development and construction of a particular project, looking to cashflows and project’s assets as sources of payment for their loans, rather than to the credit ratings of the project sponsors.
Historically project finance was widely used in financing transport and logistics infrastructure, like railways or channels. More recently, in the past decades, there has been a new wave of global interest: large amounts of debt have been raised to finance projects like motorways, distriparks, maritime ports, intermodal logistic platforms. These infrastructures are built, owned and operated by special purpose vehicles (SPV), organized for that single project and financed mainly by debt. In many cases, SPVs are not wholly owned by private investors since governments, public authorities and international organizations take equity stakes in them, creating private-public partnerships (PPP).
This brief note will not explore all the technical aspects of project finance, that have been extensively covered by academic scholars and practitioners in a wide literature on this subject . The focus here is on a few particular issues, related to the adoption of project financing
Bibliography: Estache A., Juan E., Trujillo L. “Public-Private Partnerships in Transport” World Bank Policy Research Working Paper Series, 2007. Estache, A., “PPI divorces vs. PPI partnerships in Infrastructure”, Review of Industrial Organization, n. 26, 2006. Esty, B.C. Why Study Large Projects? An Introduction to Research on Project Finance European Financial Management, Vol. 10, No. 2, 2004. HM Treasury, Value for Money Assessment Guidance, London, 2006 HM Treasury, Technical note N Nevitt, P.K., and Fabozzi, F.J., “Project Financing 7th ed.” Euromoney, London, 2000. Project Finance. European Financial Management, 10(2): (2004). Williamson, E.O. Markets and Hierarchies, Free Press, New York, 1975 Yescombe, E.R., Public-private partnerships: Principles of Policy and Finance, Elsevier, New York NY USA, 2007