1. Simon Par Keeling, Société Générale Paris
PROJECT FINANCE
Simon Par Keeling, Société Générale Paris

2. What do we mean by a Project?
Investment made by a "sponsor ", either:
a company
or often a joint-venture
in a long term project / concession, which is either:
"greenfield" development
or a sizeable increase in capacity or significant refurbishment/extension of an existing plant
which will generate a well defined stable cash-flow

3. Project Finance : General Definition
Financing of a specific investment, the reimbursement of which is linked to and based upon the future cash-flows of the project, with limited recourse to the Sponsors of the project company
Project needs to be well defined conceptually and contractually
For Banks, Project Risk is between Capital Risk and Asset or Corporate Financing
Définition for the bank.
Operators/Manufacturesr might have a different definition

4. How do companies finance their Projects?

5. Types of Project where Project Finance can be used
Private companies (well defined projects with appropriate counter party risks)
Government / local authority privatisation (PFI/PPP type projects)
roads
waste collection
water treatment

6. Drivers for a Project Government / local authorities Sponsors
Budget considerations - Project passed to private sector via a long term concession
Design, construction, financing & operation passed to private sector (DBFO)
An appropriate level of project risk passed to private sector
Sponsors
Equity investment and returns
Construction and operating contracts
Balance-sheet considerations

7. Project Finance Structure

8. Project Finance Features
Debt service relies on future cash flows of a particular project instead of corporate operations ("limited recourse")
Insulation of the "Project"
Project Risks identification
Project Risks allocation between sponsors, outside investors, banks, insurers, etc...
For the banks, this leads to an "investor like" approach
Project rationale analysis
What are the most appropriate financing structure and instruments to reconcile various objectives ?
Schedule / Cost optimization
Banking due diligence

9. Project Approach (1) Sponsors objectives and project's rational
Risk analysis :
General risks : country, economic, political
Corporate risks : financial and contractual obligations

10. Project Approach (2) Specific risks : regulatory technical
construction completion (delays, cost overruns, performances)
supply, reserves
operations (performances, availability, operating costs)
market (volume, price, traffic)
financial risk (exchange, interest, liquidity, transferability risks)
Force Majeure

11. Project Approach (3)
Overall contractual structure (required entities, fiscal optimization)
Cash flow analysis and sensitivities
Allocation of risks between parties
contracts
guarantees
specific supports
insurances
Independent advisers
Technical, Legal, Insurances

12. Project Approach (‘4) Documentation Syndication Contracts, Agreements
Security Agreements (pledge of shares, of revenues, assignment of contracts, mortgages, offshore project accounts, etc.)
Cash flows allocation order
Syndication

13. Case by case approach, within a typical frame
Sub-contracts
Construction Companies
Contractor
Construction Contract
Shareholders
Operator
O&M Contract
Shareholders Agreement
Governmental Authority
Concession Agreement
Insurance Companies
Concession / Project Company
Consumers / Offtaker
Revenues
Supplier
Securities
Credit Facilities
Performance Bond Banks
Lenders
Support Agreements
Pledge of shares