Product Description

A project sponsor (shareholder) raises funds through establishment of a project company which will be the borrower. It is the project company’s cash flow and benefits which are the source of repayment and the assets of the project company that secure the loan. It is generally applied to large-scale infrastructure projects like power generating facilities, high-grade highways, bridges, tunnels, railways, airports, urban water supplies and sewage treatment plants, ports and river or maritime terminals and other construction projects with large investment scale and long-term stable expected cash-flows.

Product Features

1.Realize the non-recourse or limited recourse of finance. Under normal situations of such product design, the project sponsor shall not guarantee loan repayment by its assets except for investing a certain share capital into the project company. Therefore, the sponsor will keep more resources to invest in other projects.

2.Realize the off-balance sheet finance. If the sponsor gets a loan directly from the bank, its ratio of liabilities increased, financial indicators are affected with possible impact on future financing cost. By contrast, the sponsor establishes the project company with legal personality which takes charge of project finance and construction. On condition that shares of the sponsor in the project company is no more than a certain percentage, the finance of the company will not be reflected on the balance sheet consolidated by the sponsor.

Term

The term of project finance generally includes medium term (one to five years) and long term (over five years), it mostly adopts amortization and floating interest rate.

Target Customers

All projects that may gain stable cash flow and be attractive to the bank may raise funds through project finance.

Project finance can be with or without recourse.

1.Project finance without recourse

It is also called as pure project finance. Under this financing method, company may repay principal with interest for loans completely depending on operating efficiency of the project. Meanwhile, the lending bank must gain property guarantee from project’s assets in order to guarantee its own interest. If the project fails for completion or operation and its assets or interests are not sufficient for repayment of all loans, the lending bank has no right of recourse to the project sponsor.

2.Project finance with recourse

Except taking operation benefits of the loan project as repayment source and gaining property guarantee, the lending bank also requires the third Party other than the project to provide guarantee. The lending bank has right of recourse to the third Party. However, the third Party undertakes limited liabilities in their guaranteed amount. So it is called as limited recourse project finance.