Advantages and disadvantages of ppp project financing
1. Solve the problem of insufficient funds of the host government. Large-scale infrastructure construction often requires a lot of capital investment. Faced with huge investment expenditure, government funds are often difficult to turn around for a while. On the other hand, the huge profits brought by infrastructure projects can attract a lot of foreign private capital, thus solving the problem of insufficient funds and reducing the financial burden of the government, which is a new way for developing countries to solve the problem of insufficient funds.
2. Diversify investment risks without affecting the government's ownership of the project. In terms of financing, the risks and responsibilities of infrastructure projects invested by BOT are borne by investors, which greatly reduces the risks of the host government. In the construction, construction and initial operation stages of the project, the possibility of various risks is also great. If BOT investment is adopted to attract foreign private capital investment, the government can avoid taking all kinds of risks, and the investors, contractors and operators of the project will bear these risks accordingly. Through this financing method, not only can the scope of risks undertaken by the government be greatly reduced, but it is also conducive to the success of infrastructure projects.
It is beneficial to introduce foreign advanced technology and management methods. By entrusting the project to foreign investors for investment and management, the host country can learn from foreign advanced technology and management experience, speed up the project construction and improve the operational efficiency of the project. At the same time, the builders of other domestic infrastructure projects can learn from them to improve the investment, operation and management of domestic projects and connect with the international market. From the perspective of project investment enterprises, they can set foot in the host country's market and obtain
Rich profits can also promote the export of complete sets of equipment in the investing country.
For the host country, BOT investment methods include bidding, government risk sharing, financing costs and other economic issues. During the concession period, the government lost control over the ownership and management rights of the project.
Participants in ppp project financing
Due to the complex financing structure of the project, compared with traditional financing methods, there are more stakeholders involved in financing. To sum up, it mainly includes the following categories: project companies, project investors, banks and other financial institutions, project product buyers, engineering contracting companies, material suppliers, financing consultants, project management companies and so on.
The project company is a legal entity directly involved in the project construction and management, and bears the debt liability. It is also the core of organizing and coordinating the development and construction of the whole project. The project investor owns all or part of the equity of the project company. In addition to providing some equity funds, it is also necessary to provide certain credit support for the project company in the form of direct or indirect guarantee. Financial institutions (including banks, leasing companies, export credit institutions, etc. ) is the main provider of project financing funds, which can be one or two banks or a consortium composed of more than a dozen banks.
A lot of work in the process of project financing needs people with special skills to complete, but most project investors do not have the experience and resources in this field, so it is necessary to hire professional financing consultants. Financing consultant plays an important role in project financing, which affects the success or failure of project financing to a certain extent. Financing consultants are usually held by the financing departments of investment banks, finance companies or commercial banks.
The buyer of project products plays an important role in project financing. The product sales of the project are generally realized through a long-term sales agreement signed with the buyer in advance. The future stable cash flow formed by this long-term sales agreement constitutes the credit basis of bank financing. In particular, the development of resource projects is affected by changes in international market demand, and the price fluctuates greatly. Whether there is a stable long-term product sales agreement that meets the requirements of the lending bank is often the key to the successful implementation of project financing. For example, the argyle Diamond Project developed by Australian Ashton Mining Company hopes to raise funds through project financing. Because the banks involved in financing believe that the market price and sales of diamonds are risky, it is difficult to complete the financing work. However, after the company signed a long-term underwriting agreement with a reputable diamond seller in London, Ashton Mining Company quickly obtained a loan from the bank.
Application process of ppp project financing
Project financing generally goes through three stages: financing structure analysis, financing negotiation and financing implementation. In the stage of financing structure analysis, through in-depth and extensive research on the project, the project financing consultant assists investors in making financing plans, signing relevant memorandums of understanding, confidentiality agreements, etc. , and set up a project company.
In the financing negotiation stage, the financing consultant will contact banks and other financial institutions on behalf of investors to provide project information and financing feasibility study report. After on-the-spot investigation, due diligence and several rounds of negotiations, the lending bank will jointly draft relevant financing documents with investors. At the same time, investors also need to sign relevant sales agreements, guarantee agreements and other documents according to the requirements of banks. The whole process needs repeated negotiations and consultations, which not only protects the interests of investors to the greatest extent, but also can be accepted by lending banks.
In the stage of financing implementation, because the financing bank bears the risk of the project, it will increase the supervision of the project implementation process. Usually, the loan bank will supervise the progress of the project, participate in the decision-making procedures of some projects according to the provisions of the financing documents, and manage and control the loan capital investment and cash flow of the project. Through the participation of banks, it will also help project investors to strengthen the control and management of project risks to some extent, so that all parties involved can share risks and benefits.
With the acceleration of "going out" of domestic resource enterprises, the advantages of diversified financing and risk sharing of project financing are becoming more and more obvious. Therefore, it is necessary for enterprises to understand the characteristics and advantages of project financing as soon as possible, and constantly explore and master the process and steps of project financing, so as to improve their financing ability and obtain financial guarantee for the smooth development and rapid development of overseas mineral resources.