04-08-2012, 02:59 PM
PROJECT FINANCING IN SYNERGY FINANCIAL SERVISES PUNE
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INTRODUCTION OF THE PROJECT FINANCING
Project financing has become one of the core activities of banks in the recent years. With the growth in the economy and the revival in the industrial sector coupled with the increasing role of private players in the field of infrastructure, more and more banks are entering into the project finance area. This examination is specially designed, in collaboration with the Institute for Financial Management and Research (IFMR), Chennai, to familiarize candidates with basic issues arising in financing projects, as well as risk analysis and risk mitigation methodologies with a specific emphasis on structured financing.
The financing of long-term infrastructure and industrial projects based upon a complex financial structure where project debt and equity are scope of the project financing.
Arranging short-term financing, controlling cash, managing accounts receivable, inventory management are function including in project financing of finance management. A thorough understanding and application of all these aspects is necessary to be able to maintain the optimum level of finance within the firm.
The requirement of the project financing is depending upon the nature of the business. The business may be small are large, but the requirement depend on the operation of the business it means the cycle of the business. If the operating cycle is longer the requirement of finance would be longer of the business.
COMPANY PROFILE
Synergy financial services company and its Partners enjoy good reputation in business circle in and around Pune. The firm stands by integrity and commitment and strives to develop mutually beneficial thrilling relationship; the partners of the firm have rich experience in corporate banking, Investment banking, corporate finance and retail finance domain.
The firm is built on more than 20 years of direct consulting experience interacting with companies in and around Pune for understanding their business needs, formulating strategies and implementing them efficiently and effectively. The firm has amongst its clientele some of the leading Infrastructure, Real estate, Steel, Engineering, Educational institutes and trading companies in and around Pune. The firm has its focus on midsized corporate, SSI units and trading concerns.
The approach of synergy financial services company is on imparting the larger solution to corporate needs rather than mere isolate problem solving. This calls for developing long lasting business relationship and promoting mutual trust, and synergy financial services strive to stand by them.
SWOT Analysis
Strengths
Both partners of the firm have vast experience in the field of finance.
The firm has strong customer base many of which are with the firms for last many years.
Firms have good contact with in industry.
Good reputation in market.
Weaknesses
Firm does not put any efforts on marketing, which may help to grow the market.
The firm has partnership structure and hence inherits the limits associated with this kind of organizational structure.
Opportunity
Large chunk of company’s assignment comes from developers and industry is currently in boom, which provides opportunity for the firm to expand its business.
Threats
Similar types of competitors.
Foreign financial services coming in India.
OBJECTIVES
To understand the concept of Project financing, it’s various components, methods and nature of project financing.
Another important objective is to analyze the various components of project financing, which is specifically used in borrowing the finance for the small-scale industry and large-scale industry. If focuses on the requirement and the procedures applied by the banks for assessing and sanction the loan.
It also studies the various guidelines issued and recommended by various RBI committees.
To apply these procedures at a practical level with the help of a case study.
History of Project Financing:-
Limited recourse lending was used to finance maritime voyages in ancient Greece and Rome. Its use in infrastructure projects dates to the development of the Panama Canal, and was widespread in the US oil and gas industry during the early 20th century. However, project finance for high-risk infrastructure schemes originated with the development of the North Sea oil fields in the 1970s and 1980s. For such investments, newly created Special Purpose Corporations (SPCs) were created for each project, with multiple owners and complex schemes distributing insurance, loans, management, and project operations. Such projects were previously accomplished through utility or government bond issuances, or other traditional corporate finance structures.
Project financing in the developing world peaked around the time of the Asian financial crisis, but the subsequent downturn in industrializing countries was offset by growth in the OECD countries, causing worldwide project financing to peak around 2000. The need for project financing remains high throughout the world as more countries require increasing supplies of public utilities and infrastructure. In recent years, project finance schemes have become increasingly common in the Middle East, some incorporating Islamic finance.
What is the Project financing?
Definition.
Project financing involves non-recourse financing of the development and construction of a particular project in which the lender looks principally to the revenues expected to be generated by the project for the repayment of its loan and to the assets of the project as collateral for its loan rather than to the general credit of the project sponsor.
"Project finance" is a method for obtaining commercial debt financing for the construction of a facility. Lenders look at the credit-worthiness of the facility to ensure debt repayment rather than at the assets of the developer/sponsor. Farm biogas projects have historically experienced difficulty securing project financing because of their relatively small size and the perceived risks associated with the technology. However, project financing may be available to large projects in the future. In most project finance cases, lenders will provide project debt for up to about 80% of the facility's installed cost and accept a debt repayment schedule over 8 to 15 years. Project finance transactions are costly and often an onerous process of satisfying lenders' criteria.
“Project finance involves the creation of a legally independent project company financed with non-recourse debt (and equity from one or more sponsoring firms) for the purpose of financing a single purpose capital asset, usually with a limited life.”
This definition highlights the following features of Project Finance:
Project Finance involves creating a legally independent project company to invest in the project; the assets and liabilities of the project company do not appear on the sponsors’ balance sheet. As a result, the project company does not have access to internally generated cash flows of the sponsoring firm. Similarly, the sponsoring firm does not have access to the cash flows of the project company. In contrast, in Corporate Finance, the same investment is financed as part of the company’s existing balance sheet.
Operation phase risk - Resource / reserve risk
This is the risk that for a mining project, rail project, power station or toll road there are inadequate inputs that can be processed or serviced to produce an adequate return. For example, this is the risk that there are insufficient reserves for a mine, passengers for a railway, fuel for a power station or vehicles for a toll road.
Such resource risks are usually minimized by: (a) experts' reports as to the existence of the inputs (e.g. detailed reservoir and engineering reports which classify and quantify the reserves for a mining project) or estimates of public users of the project based on surveys and other empirical evidence (e.g. the number of passengers who will use a railway).