PROJECT FINANCE

Project developers do not normally have expertise in the financial packaging of projects, the services of a ININCORP Financial Advisor in doing this would prove valuable for the developers. Among others, the role of the adviser will include the preparation of a Project Information Memorandum (PIM) which should reflect the due diligence efforts of the developers. The aim of the activity at this stage is to attain a financial close with terms that are agreeable to both the developers and lenders.

INFORMATION MEMORANDUM

a. Project summary

  • brief history of the project
  • list of major parties involved
  • location
  • technology used
  • energy output
  • total costs

b. Overview of financing plan, sources and uses of funds

  • description of overall financing plan breakdown of costs (use of funds)
  • plant hardware
  • construction cost
  • development cost
  • external fees (lawyer, financial adviser, etc.)
  • interest costs during construction
  • contingencies source of funds
  • planned debt, equity
  • other funds such as subordinated debt/grants (list)

c. Term sheet

  • loan structure
  • amount to be borrowed
  • time over which borrowing will occur (draw down period) to fund construction
  • loan repayment/interest rate (conservative rate should be used) - key coverage ratios, covenants, default conditions

d. Description of development plan

  • development plan/schedule
  • technology
  • environmental issues -construction details
  • operation
  • site attributes
  • permits and licenses
  • resource availability
  • electricity interconnection
  • fuel supply
  • waste disposal, etc.

e. Description of the principal contracting parties

  • relationship of parties involved and roles
  • brief financial statement of each party

f. Summary of major project contracts

  • normally produced by developer’s legal adviser
  • highlights of each major contract

g. Summary of risks

  • review of all considered principal risks and description of how these risks have been mitigated
  • completion risks (cost overruns, etc.)
  • need for experienced operator
  • completion bond (from the contractor)
  • effect of increase in interest rate
  • secure, long
  • term market for the project output
  • new technology (plants with similar technology operating elsewhere, availability, capacity)
  • protection from defects in technology

h. Summary of principal licenses and permits

  • list all the permits needed for construction and operation of the project
  • status report on each license/permit should be provided indicating those obtained (with conditions) and the expected timing for approval for those yet to be obtained

i. Financing evaluation

  • cash flow projections
  • how the project will repay debt under different scenarios (changing external and internal factors)

CHECKLIST FOR SUCCESSFUL FINANCING

  • The project is sponsored by experienced and reputable developer(s).
  • A satisfactory feasibility study and financial plan have been prepared.
  • The cost of raw materials to be used in the project is assured.
  • Supply of energy at reasonable cost is assured.
  • A market exists for the products (electricity, other by-products) or services to be produced.
  • Product Flow systems are sufficient (to connect to the grid).
  • Adequate infrastructure (roads, water, etc.) is or will be available.
  • Experienced and reliable contractor.
  • Experienced and reliable operator.
  • Management personnel are experienced and reliable.
  • Use of proven (well-demonstrated) technology.
  • Well-structured agreements (fuel supply, power purchase, etc.)
  • Adequate cash flow, acceptable debt service coverage.
  • Electricity sales price risks in market are addressed.
  • Availability of all permits and licenses.
  • Country and sovereign risks are acceptable.
  • Currency and foreign exchange risks are addressed.
  • Adequate and timely equity contributions by sponsors.
  • Project and assets have value as collateral.
  • Satisfactory appraisals of resources and assets have been obtained.
  • Proof of adequate insurance coverage.
  • Force majeure risk is addressed
  • Completion and cost over-run risks are addressed.
  • Project offers adequate ROE, ROI and ROA for the sponsors and investors.
  • Inflation and interest rate projections are realistic and from reliable sources.
  • Environmental risks are manageable.
  • Proper due diligence on joint venture partners and agreements that makes sense.
  • Review report of the independent engineer.