Merna T., Chu Y., Al-Thani F.F. Project Finance in Construction: A Structured Guide to Assessment

Wiley, 2010. – 192 p. – ISBN: 1444334778, 1444323849, 9781444334777Project 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
a structured guide to assessing the commercial viability of construction projects
explains economic metrics to use in the decision making process
detailed case study shows how stakeholders apply the concept of project financeList of illustrations.
List of tables.
About the Authors.The development of project finance.
Financial assessment.
Purpose of this guide.
Scope of the guide.
Project finance.Definition of project finance.
The key characteristics of project finance.
Legal and financial considerations in project finance.
Legal.
Financial.
Financial instruments and cash flow modelling.Debt finance.
Mezzanine finance.
Equity finance.
Sources of debt and equity.
Cash flow modelling and project financing.
Risk management.Risk.
Risk management process.
Typical risks in project financing.
The financial assessment process.The financial assessment structure.
Case study.Independent power project.
Supply and offtake contracts.
Assumptions for initial assessment.
Developing the base case model.SPV’s initial assessment.
Identify the estimated activities, time, costs and revenues of the project.
Development of the base case model.
Identify major project risks.
Assessment of base case model incorporating risks.
Initial economic assessment by lenders.Financial package assessment.
Conclusions.
Financial engineering.Financial instruments used in financial engineering.
Refinancing.
Reappraising public–private partnerships.
Techniques applied in the reappraisal of PPP concession agreement.
Other financial engineering techniques.
Final assessment to determine project commercial viability.Detailed risk assessment.
Financial engineering.Financial close.Due diligence.
Financial close.
Islamic finance and project finance.Islamic finance.
Shariah.
Core principles of Islamic finance.
Project finance.
Other Islamic finance techniques for projects.
Risks and liabilities.Conclusions and recommendations.
Review.
Conclusions.
Recommendations.Appendix.