Details

Project Finance in Construction

A Structured Guide to Assessment
1. Aufl.

von: Tony Merna, Yang Chu, Faisal F. Al-Thani
71,99 €
Verlag:	Wiley-Blackwell
Format:	PDF
Veröffentl.:	04.06.2010
ISBN/EAN:	9781444323849
Sprache:	englisch
Anzahl Seiten:	192

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Beschreibungen

Titelbeschreibung

Project finance has spread worldwide and includes numerous industrial projects from power stations and waste-disposal plants to telecommunication facilities, bridges, tunnels, railway networks, and now also the building of hospitals, education facilities, government accommodation and tourist facilities. Despite financial assessment of PF projects being fundamental to the lender’s decision, there is little understanding of how the use of finance is perceived by individual stakeholders; why and how a financial assessment is performed; who should be involved; where and when it should be performed; what data should be used; and how financial assessments should be presented. Current uncertainty in financial markets makes many sponsors of construction project financings carefully consider bank liquidity, the higher cost of finance, and general uncertainty for demand. This has resulted in the postponement of a number of projects in certain industry sectors. Governments have seen tax receipts drastically reduced which has affected their ability to finance infrastructure projects, often irrespective of the perceived demand. Equity providers still seek to invest, however there are less opportunities due to market dislocation. Due to the demand for global infrastructure it is believed that project financings will return to their pre-crunch levels, or more so, however lenders’ liquidity costs will be passed on to the borrowers. Lenders will also be under stricter regulation both internally and externally. The steps outlined in the guide are designed to provide a basic understanding for all those involved or interested in both structuring and assessing project financings. Secondary contracts involving constructors, operators, finance providers, suppliers and offtakers can be developed and assessed to determine their commercial viability over a projects life cycle. Special Features <ul> <li>a structured guide to assessing the commercial viability of construction projects</li> <li>explains economic metrics to use in the decision making process</li> <li>detailed case study shows how stakeholders apply the concept of project finance</li> </ul>

Inhaltsverzeichnis

List of Illustrations xi List of Tables xiii About the Authors xv Preface xvii 1 Introduction 1 1.1 The development of project finance 1 1.2 Financial assessment 6 What is financial assessment? 6 Why perform a financial assessment? 6 Who is involved in the risk assessment process? 7 Where should a financial assessment be performed? 7 When should a financial assessment be performed? 8 What data are to be used? 8 How should assessment outputs be presented? 8 1.3 Purpose of this guide 9 1.4 Scope of the guide 9 2 Project finance 11 2.1 Introduction 11 2.2 Definition of project finance 11 2.3 The key characteristics of project finance 13 Special project/purpose vehicle 14 Contractual arrangement 14 Non-/limited recourse 17 Off-balance sheet transaction 18 Robust income stream of the project as the basis for financing 19 2.4 Legal and financial considerations in project finance 20 Legal 20 Financial 22 3 Financial instruments and cash flow modelling 25 3.1 Introduction 25 3.2 Debt finance 25 Senior debt 27 3.3 Mezzanine finance 28 Subordinate debt 28 Bond finance 29 3.4 Equity finance 31 3.5 Sources of debt and equity 34 3.6 Cash flow modelling and project financing 34 4 Risk management 39 4.1 Introduction 39 4.2 Risk 39 4.3 Risk management process 41 Risk identification 42 Risk analysis 44 Risk response 47 4.4 Typical risks in project financing 49 5 The financial assessment process 51 5.1 Introduction 51 5.2 The financial assessment structure 51 SPV assessment 51 Lenders’ assessment 54 SPV and lender final assessment 55 6 Case study 57 6.1 Introduction 57 6.2 Independent power project 57 6.3 Supply and offtake contracts 58 Supply contracts 60 Offtake contracts 61 Applications of supply and offtake contracts 64 6.4 Assumptions for initial assessment 65 7 Developing the base case model 69 7.1 Introduction 69 7.2 SPV’s initial assessment 69 7.3 Identify the estimated activities, time, costs and revenues of the project 70 7.4 Development of the base case model 71 7.5 Identify major project risks 73 7.6 Assessment of base case model incorporating risks 74 8 Initial economic assessment by lenders 77 8.1 Introduction 77 8.2 Financial package assessment 77 Finance package (1) 78 Finance package (2) 82 Finance package (3) 83 8.3 Conclusions 87 9 Financial engineering 89 9.1 Introduction 89 9.2 Financial instruments used in financial engineering 90 Forward rates 90 Financial futures 90 Swaps 91 Options 92 Caps, floors, collars, swaptions and compound options 92 Asset-backed securities 93 9.3 Refinancing 94 9.4 Reappraising public–private partnerships 94 9.5 Techniques applied in the reappraisal of PPP concession agreement 95 9.6 Other financial engineering techniques 96 10 Final assessment to determine project commercial viability 101 10.1 Introduction 101 10.2 Detailed risk assessment 101 10.3 Financial engineering 105 Tax holiday 105 Financial collar 107 Extending the concession 107 Increasing debt 107 Grace period 108 Phasing construction and operation 108 Upfront payments 108 Existing concession revenues 108 10.4 Summary 109 11 Financial close 111 11.1 Introduction 111 11.2 Due diligence 111 Technical 113 Legal due diligence 114 Trigger step in rights 116 Model audit and sensitivity analysis 116 Risk valuation 117 Term sheet 117 Inter-creditor agreement 117 Hedge strategy 118 Letters of credit 118 Reserve account 119 Escrow and ring-fenced facilities 119 Economic indicators 120 Taxation 120 Insurance 121 11.3 Financial close 122 Credit committee approval process 123 Due diligence report 124 Technical closure 124 Financial close 124 Technical commencement 124 Execute interest rate swaps 125 12 Islamic finance and project finance 127 12.1 Introduction 127 12.2 Islamic finance 127 12.3 Shariah 129 Qiyas and Litihad 129 12.4 Core principles of Islamic finance 130 Sharing (profit/loss and risk) 130 No unfair gain 130 No speculation 130 No uncertainty 130 No investments that are not in the public interest 131 No hoarding of money 131 Deception 131 Islamic financial institutions 131 Shariah supervisory boards 132 12.5 Project finance 132 The Ijara principle 133 Ijara Mawsufah Fi Al Dhimmah (forward lease) 133 Istisna’a 133 Sukuk 134 Sukuk al Istisna’a 135 A typical SAI deal 135 Hedging 136 Swaps 137 12.6 Other Islamic finance techniques for projects 137 Musharaka (equity financing) 137 Bai salam (forward financing) 138 12.7 Risks and liabilities 138 12.8 Summary 139 13 Conclusions and recommendations 141 13.1 Review 141 13.2 Conclusions 142 13.3 Recommendations 144 Appendix 147 Glossary 159 References 161 Index 167

Rezension

“Overall, the short book is simple to read and understand.” (Construction Management and Economics, 2012) "This guide is for project managers, students, and academics involved in structuring and assessing project finance." (Book News Inc, November 2010)

Autorenportrait

Anthony Merna is senior partner of Oriel Group Practice, a multidisciplinary research and consultancy practice based in Manchester and a visiting lecturer to Manchester Business School at the University of Manchester. He has been teaching Project Finance for the last 14 years to a number of UK and overseas universities, businesses and government agencies. Yang Chu is a graduate of the School of Mechanical, Aerospace and Civil Engineering at the University of Manchester and a research consultant with Oriel Group Practice specialising in the areas of project finance and risk modelling. He is currently carrying out risk management research at Manchester Business School. Faisal Al-Thani is Senior Development Manager, Middle East for Maersk Oil based in Doha and a board member of the Marsh International Risk Council.

Back cover copy

Project finance in construction procurement has spread worldwide from power stations and waste-disposal plants to telecommunication facilities, bridges, tunnels, railway networks, and now also to the building of hospitals and schools. Despite a financial assessment of PF projects being fundamental to the lender’s decision, there is little understanding of how the use of finance is perceived by individual stakeholders; why and how a financial assessment is performed; who should be involved; where and when it should take place; what data should be used; and how financial assessments should be presented. The steps outlined in this guide provide a basic understanding for all those involved in structuring or assessing project finance. Secondary contracts involving constructors, operators, finance providers, suppliers and offtakers can be developed and assessed to determine their commercial viability over a project’s life cycle. Any uncertainty in financial markets prompts sponsors of construction project financings to carefully consider bank liquidity, the higher cost of finance, and general uncertainty for demand. This results in the postponement of projects and the drastic reduction of governments' tax receipts, which in turn affects their ability to finance infrastructure projects. Project Finance in Construction offers a structured process for determining the commercial viability of large construction projects procured with project finance (PF). It explains how to use economic metrics in the decision-making process and provides a detailed case study showing how stakeholders apply the concept of project finance. This guide will enable students and academics involved in project finance as well as project managers worldwide to develop their own assessment structures and be confident in their use.