(FAQ) PROJECT FINANCE

Q.  What is Project Financing ?

It is a method of financing very large capital intensive projects, with long gestation period, where the lenders rely on the assets created for the project as security and the cash flow generated by the project as source of funds for repaying their dues.

Q.What are the typical characteristics of Infrastructure Projects?

A. Some of the typical characteristics are

  • Large capital costs

  • Long gestation periods

  • Assets are not easily transferable

  • Services provided are not tradable

  • Revenues only in local currency;

borrowing may be in foreign currency

  • Tariffs are politically sensitive

  • Social aspects involved

  • Vulnerable to regulatory policies

  • Limited recourse financing needed.

Q. What are the features of limited recourse/ non-recourse financing? Some of the features are?
  • Financing through Special Purpose Vehicles (SPV)

  • Sponsor support obligation for SPV

  • Use of Trust and Retention

Arrangement to capture the cash Flow

  • Govt. guarantee may be available.