Friday, June 23 2017

What is a Project Finance?

Financing of a specific project in which lenders relies primarily on the project's cash flow generated by the operation of the project as source for repayment of loans, with the project's assets, rights, and interests held as secondary security or collateral.

Project finance is especially attractive for the development of projects like machines, equipment, complete plants.

Characteristics of the project financings:

  • Special Purpose: project developed through a separate financial and legal entity

  • Off Balance Sheet: project assessment is not based on balance sheet position of the sponsors. Accounting treatment of project debt is completely separate from the sponsors' own borrowings in its consolidated accounts. Sponsors’ financial position is not affected

  • Highly Leveraged Structures: allows sponsors to maximize the debt to equity leverage of the project. A level of 70% to 90% debt is typical.

  • Non-recourse/Limited Recourse: financing is secured only by the project itself without legally recourse to the sponsors.

The use of a wide range of financial instruments is subject to the degree of financial market development where the initiative is implemented.

Case history

Saudi Arabia

Year

2003

Supply of

Furnace for soda lime glass

Loan amount

1,5 mil €

Repayment

in n° 10 half-yearly instalments (5 years) the first one due at 6 months from the shipment

Interest rate

less than 5% per year

Documentation

Promissory Notes, covered by SACE insurance policy, signed by the Buyer to the order of the Seller, without any bank Guarantee

Spain

Year

2004

Supply of

Furnace revamping

Loan amount

1 mil €

Repayment

in n° 10 half-yearly instalments (5 years) the first one due at 6 months from the shipment

Interest rate

less than 6% per year

Documentation

Promissory Notes, signed by the Buyer to the order of the Seller, without any bank Guarantee, without SACE insurance policy

Republic of Belarus

Year

2007

Supply of

table ware furnace equipment

Loan amount

0,5 mil €

Type of loan

5 years post financing to a Belarus bank

Interest rate

less than 5% per year

Documentation

Irrevocable and confirmed letter of credit confirmed from SACE insurance policy and financed from Italian bank

Year

2009

Supply of

Electric furnace 24% lead crystal glass

Loan amount

4,5 mil €

Type of loan

5 years post financing to a Belarus bank

Interest rate

less than 5% per year

Documentation

Irrevocable and confirmed letter of credit confirmed from SACE insurance policy and financed from Italian bank

Ukraine

Year

2011

Supply of

Plant for the production of glass containers

Loan amount

4,9 mil €

Repayment

in n° 10 half-yearly instalments (5 years) the first one due at 6 months from the shipment

Interest rate

less than 4% per year

Documentation

Promissory Notes, covered by SACE insurance policy, signed by the Buyer to the order of the Seller, without any bank Guarantee

Zambia

Year

2013

Supply of

Plant for the production of soda lime glass containers

Loan amount

8,5 mil €

Type of loan

5 years post financing to the customer bank

Interest rate

less than 6% per year

Documentation

Irrevocable and confirmed letter of credit confirmed from SACE insurance policy and financed from an European bank

Year

2015

Supply of

Machines for glass industry

Loan amount

1,2 mil €

Type of loan

5 years post financing to the customer bank

Interest rate

less than 6% per year

Documentation

Irrevocable and confirmed letter of credit financed from an European bank