1, political and legal risk management
(1) Insure against political risks. Political risks are mainly underwritten by state-owned insurance companies, national export credit agencies and their insurance departments. Some multilateral institutions, such as the World Bank, sometimes provide political risk guarantees for their lenders' own projects. Private insurance institutions also cover political risks with higher premiums, such as Helmes in Germany.
(2) Require the government and relevant departments to make certain guarantee commitments. Including the government's guarantee of the validity and transferability of the rights or licenses of certain franchise projects, the commitment to foreign exchange control, and the approval of special tax structure.
(3) Internationalization of the project. Try to use loans from multilateral financial organizations and transnational export credit banks, or make the project funders come from multiple countries.
(4) The sponsors need to hire legal advisers to participate in the project design process. Because the design, financing and tax treatment of the project must meet the legal requirements of the country where the project is located.
2. Financial risk management Interest rate risk management: optimize the loan interest rate structure and control the financing cost. When the international financial market is short of funds, the interest rate will rise gradually, so it is advisable to choose a fixed interest rate, which should account for about 70% of the whole loan; However, when there is an oversupply of funds in the international financial market, interest rates will tend to fall, so it is best to choose floating interest rates. The balanced proportion of fixed interest rate debt and floating interest rate debt in loans can reduce risks and losses.
Exchange rate risk management: adopt a reasonable foreign debt currency structure to control exchange rate risk. Due to the drastic fluctuation of the exchange rate in the international financial market, a reasonable foreign currency structure should be to maintain an appropriate proportion of various currencies, balance the use of soft and hard currencies, and prevent the formation of an unreasonable structure with too single currency. Try to unify the borrowing, repayment and repayment currencies of foreign currency loans and shorten the repayment period of foreign debts. In addition, financial risks can be managed through new financial derivatives.
3. Risk management of the project itself
Completion risk management. Cost overrun risk, time delay risk and quality risk are the main risk factors affecting the completion of engineering projects in China. The method to control them is usually carried out by the project company using the turnkey contract with fixed price and fixed construction period and the loan bank using the completion guarantee contract or the commercial completion standard. Transfer some risks to the engineering contracting company through the engineering construction contract.
Production risk management. The management of production risk is implemented through a series of financing documents and credit guarantee agreements. The risks of energy and raw materials can be prevented and eliminated by signing long-term energy and raw material supply contracts. With regard to technical risks in production risks, lending banks generally require that the technologies adopted by the project are mature production technologies that have been confirmed by the market, which are successful, reasonable and have successful precedents.
Market risk management. Market risk management runs through the whole project. In the project planning stage, investors should do a good job in market research and market forecast to reduce the blindness of investment. In the process of project financing, the effective way to reduce the project market risk is to require the project to have a long-term product sales agreement. The term of the long-term product sales agreement should be consistent with the financing period, and the sales quantity should also be all or at least most of the products produced by the project during this period. In terms of sales price, according to the nature of products, floating pricing and fixed pricing can be adopted. Changes in inflation, interest rate and exchange rate should be fully reflected in the pricing, which will help reduce the market risk of the project. The project company can also get some credit support from other project participants, such as the government or local industrial departments, in order to spread the market risk of the project.