IB-PS Ch.13 Project Advisory Services - PTR

Full recourse and limited recourse project financing structures

Full recourse

The existing assets as well as assets to be created in future are providedd as a security for the lenders. In addition personal guarantees by the promoters and/or other corporate concerns is also obtained by the lenders.

Limited recourse

In limited recourse, the project is implemented as an SPV and a recourse to promoter is insisted for the proper completion of the project and some additional guarantees may be given by some other parties to the project. For example, Government may guarantee minimum revenues for a fixed number of years


Project Financing Process

Project Conceptualization


Sound Concept backed by business opportunity and revenue model
Project should be bankable
Not necessary to be backed by empirical experience
Should satisfy policy requirements of the government and lending institutions
Should not be under negative list of industries

Project Structuring

Concerns regarding location, procurement, production, technology, marketing and promoter usefulness are considered
Mitigation of risk is key responsibility and Important
Normally awarded to consortia
Normally implemented under and SPV to avoid bankruptcy
RBI Guidelines:
Sponsor commits to provide support for cost overruns
SPV has security structure more stringent than normal projects
Cash flow of the SPV are captured by way of TRA arrangement

Types of project Financing

Project Financing through Equity

Project Financing through long term debt
Domestic Rupee Term Loans
ECB
Automatic Route
Approval Route
Debentures
Other Debt Securities

Project Advisory and Related Transaction Services provided by Investment Banks

Bid Advisory Services (in case of projects that require bids - development of oil fields etc.)

Preparation of “Expression of Interest”
Preparation of a detailed “Information memorandum”
Bid Document
Draft License Agreement
The making ready the “Data Room” – Contains all material information for inspection by eligible bidders

Project Advisory Services


Putting the Project Consortium in place
Completion of documentation for some key project contracts
Listing out of all key statutory clearances required for project to proceed
Preparation of financing plan
Should be in line with institutional norms
Permissible debt-equity ratio
Provisions regarding various sources of finance considered
Various debt and equity instruments considered

Financial Advisory and Transaction Services

Financial closure it the term used to denote completion of tying of the funds required for the project.

Issues need to get sorted at policy level to complete financial closure
Final aspects of contractual agreements between various parties need to be sorted out
Financing mix should be a trade-off between optimization of cost of funds and cost of closure
Feasibility of financing mix needs to be considered
Credit enhancements that would de-risk the financing institution and increases bankability helps the financial closure