Project finance deals with analyzing the financial feasibility of a particular project based on expected cash flows. It is a form of financing used for long-term infrastructure and industrial projects that often involve governments. Key features include risk sharing between multiple parties and better management. The different stages of project finance include feasibility, structuring, and implementation. Advantages are reducing lender recourse and maximizing leverage, while disadvantages include higher costs and disclosure requirements. Parties typically involved are the project company, sponsors, lenders, host government, offtaker, suppliers, and contractors. Sources of finance include loans, equity, retained profits, and sale/leaseback arrangements.

1. Submitted by
Mansi Kadlag (MBACORE019024)
Chandan Kadu (MBACORE019025)

2. What Is Project ?
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• Project is a great opportunity for organizations and
individuals to achieve their business and non-business
objectives more efficiently through implementing change.
• A Project is a temporary, unique and progressive attempt
or endeavour made to produce some kind of a tangible or
intangible result (a unique product, service, benefit,
competitive advantage, etc.). It usually includes a series of
interrelated tasks that are planned for execution over a
fixed period of time and within certain requirements and
limitations such as cost, quality, performance, others.

3. What Is Finance?
• Finance is a broad term that describes
activities associated with banking,
leverage or debt, credit, capital markets,
money, and investments.
• Finance is a term for matters regarding the
management, creation, and study of
money and investments.
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4. What is Project Finance ?
• Project Finance deals with financial aspects
related to a particular project that involves
analysing the feasibility of a project and its
funding requirements on the basis of the cash
flows that the project is expected to generate, if
undertaken, over the years.
• Project finance is a form of syndicated finance
designed for long–term infrastructure and
industrial projects often involving governments.
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5. Key Features of Project Finance
1. Risk Sharing
2. Involvement of Multiple Parties
3. Better Management
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6. Different Stages of Project Finance
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7. Advantages and Disadvantages of Project Finance
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Advantages of Project Finance
• Eliminate or reduce the lender’s recourse to the sponsors.
• Permit an off-balance sheet treatment of the debt financing.
• Maximize the leverage of a project.
• Avoid any restrictions or covenants binding the sponsors under their
respective financial obligations.
• Avoid any negative impact of a project on the credit standing of the
sponsors.
Disadvantages of Project Finance
• Often takes longer to structure than equivalent size corporate
finance.
• Higher transaction costs due to creation of an independent entity.
• Project finance requires greater disclosure of proprietary
information and strategic deals.

8. Parties involved in Project Finance
1. Project Company
2. Sponsors
3. Lenders
4. Host Government
5. Offtaker
6. Suppliers
7. Contractors
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9. Sources Of Finance
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10. • Overdrafts are useful sources of short-term finance due for repayment in less than a year. Interest
is only charged when the facility is used and the interest payments are tax-deductible. They can be
arranged at short notice and are flexible in the amount borrowed at any time.
• Loans generally have higher rates of interest and are less flexible as payments need to be made
for a pre-agreed amount and at a pre-agreed time. Loans can be repaid in stages or at the end of the
loan period. The interest is also tax deductible and return on the loan can exceed the interest
payments. The cost of borrowing money can be compared with the return from a project by
calculating the Internal Rate of Return.
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Sources of long–term project finance

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• Sale and leaseback:
Assets can be sold to a financial institution and then leased back for a certain term. This
releases capital in assets, which can be used for investment, but should be offset by the rental
payments and loss of capital growth should the assets increase in value.
• Loan Capital:
Debentures: Some loans are secured by a fixed or floating charge against a company’s
assets and are known as debenture loans. Debenture holders receive their interest payment
before any dividend is paid to shareholders and if the business fails the holders will be
preferential creditors.
Sources of long–term project finance

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- Business Angels: These are private investors who invest directly in a company in
exchange for an equity stake and perhaps a place on the board. They normally invest in the
region of £10k to £100k and they invest in order to receive a capital gain, they are usually
experienced entrepreneurs and can be a source of useful knowledge for the business.
- Venture Capital : Venture Capitalists usually offer 100k or more to companies that
other financial institutions might consider too risky. They exchange their capital for an equity
share and involvement at a strategic level often through a non-executive position on the board.
Their prime aim is to increase the value of their shares so that they can sell them at a profit.
Sources of long–term project finance

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• Share Capital:
Share Capital is raised through the company shareholders. In exchange for their investment
they receive a share of the profits through a dividend. They may also receive a capital gain
through sale of their shares are some future date. There are two main types of shares. Ordinary
shares are held by the owners of the business who have a right to a share of the company profits
through dividends, which vary in value depending on performance. As owners of the company
they have voting rights at Annual and Extra-Ordinary General Meetings, however they are liable
should the company become insolvent and are therefore accepting a level of risk with their
investment. Preference shares are less risky as the holders of preference shares are not owners of
the company. They offer a guaranteed dividend although this may be less than that received by
ordinary shareholders. As preference shareholders are not owners of the company they have
limited voting rights.
Sources of long–term project finance

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• Retained profits Not all profits are distributed to shareholders: the company retains a
proportion as reserves. This is usually the most significant source of equity finance, costs
far less than external sources that charge interest and can be distributed as the company sees
fit.
• Issuing shares Shares can be issued through new issues or rights issues. New issues are
generally made at the same time as the company is floated on the stock market, and the
capital raised is significant. The price of the new share is based on project growth rates,
stability, market sentiment, and comparison with other similar companies and the capital
structure of the company.
Sources of long–term project finance

15. Thank You