As the final part of his Public Private Partnership series, Ian follows on from his in depth look at Structured Finance in the last episode by explaining the different structures that can be put in place to finance a project. He will discuss the aim of project finance, non-recourse project finance, the flow of funds, alternatives to non-recourse project finance, Islamic finance and the various sources of finance available.
KEY TAKEAWAYS
- The specific project company (SPV) formed raises the finance through a combination of equity provided by the shareholders of the company and debt provided by the banks.
- If the equity investors are a big enough corporation the EPC (Engineering Procurement and Construction) and ONM (Facilities Management) can be affiliated, although the SPV always remains a separate entity to mitigate risk.
- The aim of Project Finance for the shareholders is to minimise the cost of finance for the project.
- Equity finance is higher risk, thus higher return at 10-14%. Debt finance returns at a lower rate of 5-8%. Equity finance is kept in the project to completion.
- Islamic finance is a specific kind of finance and represents a relatively untapped market as the Islamic world has a significant amount of money available for funding projects.
- Debt finance can be sourced from commercial lenders, institutional investors, export credit agencies, bilateral or multilateral organisations, bond holders, or the government or authority concerned themselves.
BEST MOMENTS
‘Primarily what is called ‘step in rights’, which the lenders will have if the project company defaults, the lenders will be able to step in directly with the Contracting Authority to make sure that their debt is repaid.’
‘When I was doing a lot of PPPs before the financial crisis the common way of doing this was through a bond structure that then had what’s called an insurance wrapper around it to protect the bond holders.’
‘In my opinion, PPP structured finance don’t really work below a $50 million or £50 million value. Yes, I’ve done projects at the $20-30 million and its sort of worked but it’s not ideal.’
‘Repayment of debt is generally tied to a fixed or floating rate of interest and periodic payments, very similar to your house mortgage.’
VALUABLE RESOURCES
ABOUT THE HOST
Ian Rogers is an entrepreneur running businesses in the Real Estate, Construction and Facilities Management arena. Ian has over 40 years’ industry experience, as he was effectively born into construction with his father having his own building company and Ian spending time working on sites from the age of 11!. As a result Ian has seen the industry from a trades person perspective, as a chartered quantity surveyor working on large commercial projects, as a project manager and then working on structured project finance through PFI/PPP deals. This has given Ian a unique whole life approach to any project by considering the end game at the beginning.
CONTACT METHOD
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