How to Finance Infrastructure Projects? 

This course is offerred by Mr. Aloke Dasgupta from India. Mr. Dasgupta has over 30 years' experience in project finance, infrastructure investing, investment banking and capital markets (see page 19 in the project description)

Outline of the suggested summer course on Project Finance for Infrastructure Projects

 

Title of the Course: Project Finance for Infrastructure Projects

Offered by: Mr. Aloke Dasgupta, Mumbai, India

a) The aim of the Course is to:

  • provide an overview of how this type of financing is implemented;
  • have an appreciation of how infrastructure financing plays a crucial role in emerging markets;
  • typical issues that arise (which would be presented and discussed via simulated case studies – case studies would be in the Power, Metro, Solar Renewable, and Road Projects);
  • provide the uniqueness of a Public-Private Partnership (PPP) Projects and Infrastructure Projects implemented by Special Purpose Vehicles (SPVs);
  • provide not just academics but draw from real life situations – by an industry professional who has been both a senior banker and then Head of Project Finance (a top-management position) of one of the largest Conglomerate in the space of infrastructure development in India;
  • acquire skills to identify, manage/mitigate and contract ‘risks’ associated with such Projects;
  • understanding the contractual structure of such projects and the requirements from both lenders and developer/sponsors’ perspective;
  • grapple with typical covenants (commercial terms) attached to such financing – the Class will ‘role play’ and discuss negotiate a typical Term Sheet (the Class would also be provided a session on negotiation strategy)
  • The topics that would be covered in the Course is indicated at Appendix.

Main Issues

The major issues broadly in such financing are:

  • What goes into determining the Project Cost and what are the financing Options
  • Full Recourse or Limited Recourse or No recourse financing Models
  • What are the various ‘risks’ and how it is managed?
  • How is the viability of the Project determined and from whose point of view?

Learning Objective

 Many of the students, upon completion of their college studies, would take up profession in either a bank, large corporate who is developing big-ticket Projects, Consultant, Regulator, Investment Bank and the likes.

  • The Course would be contextual to their work life in the above areas. And allow the students to appreciate the nuances of Project Finance – including in Emerging Markets.
  • The objective would be to appreciate that Project Finance is vastly different than other forms of Corporate Credit.
  • Allow the participant to navigate through the maze of ‘risks’ and align the requirements of various stakeholders
  • The students would get to discuss and analyse real-world issues through case studies
  • To understand the mechanism to monitor a Project – for its proper implementation.

 Teaching Methods

  • Presentation by the Faculty of the academics of Project Finance.
  • Interactive discussions moderated by a practitioner of Project Finance, who has experience both as a senior banker and developer of large infrastructure projects who has led Projects involving Export Credit Agencies (Export Import Bank of united States, Export Import Bank of China), multilateral agencies (Asian Development Bank), commercial banks, including Chinese banks.
  • Case studies: contextual case studies covering the issues commonly faced by lenders and developers for infrastructure projects
  • The Course would conducted through a uniquely designed interactive sessions and deploys the following tools for effective learning:
  • Role Play: For each case study discussion, the Class is divided into groups (lender vs. developer etc) and negotiate, under the guidance of the Faculty, an acceptable agreement for each case.
  • Have a stimulating discussion, with experience sharing by the Faculty

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Appendix

Broad topics of the Course

  1. Introduction

Traditional Project Appraisal

  • Sponsor/Management
  • Technical
  • Market
  • Financial
  • Economic
  • Social/Environment

 Difference between Corporate Finance and Project Finance

 Project Finance

    • What and Why of “Project Finance” style financing
    • Why Public-Private Partnership (PPP)?
    • Need for Special Purpose Vehicles (SPVs)
    • Deal Diagram
      • Sponsors
      • Lenders
      • Contractors
      • Suppliers

 Types of Risks

    • During construction
    • Post construction
    • Common to both stages of the Project
    • Mitigation Strategy
    • Allocation (parking) of risks
    • Impact

 Contracts – a Power Project example

Review and Assessment of Bankability of Contracts:

  • Concession Agreement (e.g PPA)
  • Engineering, Procurement and Construction (EPC)
  • Operations and Maintenance (O&M)
  • Fuel Supply

How Cash is controlled

  • “Waterfall” Arrangements
  • Covenants

Role of Advisors

  • Owner's Engineer
  • Lender's Independent Engineer
  • Lender's Legal Council
  • Insurance Advisor
  • EH&S Consultant
  • Others
  • A Case Study on Contracts/Advisors and role play discussions
  • Financing Projects – Sources of funds
    • Equity
    • Debt
    • Sub-debt
    • Covenants
    • Term sheet
      • Pricing
      • Interest rate (fixed / floating)
      • Margin Resets, put-call option
      • Prepayment premium, Upfront Fee and Commitment Fee
      • Availability period
      • Moratorium period, repayment period, door-to-door tenor, average tenor
      • Sub-limit of loan for availing Letters of Credit (LCs), Buyer’s Credit, Supplier’s Credit
      • Cash sweep
      • Financial Covenants
      • Sponsor Support
      • Hedging program
      • Creation of Debt Service Reserve Account (DSRA) – quantum and timing thereof, Dividend Restriction
      • Conditions Precedent (CPs): Upfront equity infusion (%), balance on pro-rata, Project Agreements
      • Security Creation – timing and assets to be covered
      • Stipulations regarding Lenders approval for various actions of the Borrower e.g. material modifications / amendments to the Project Documents
      • Stipulations regarding Sponsor: Stipulations regarding management and control of the Company, appointment of nominee director
      • Governing Law

 Financial Modeling – a high level overview

    • Assumptions
    • Financial Statements
    • Ratio Analysis
  1. Measuring ‘risk’
  • Sensitivity analysis
  • Scenario analysis
  • Simulation technique
  • “What if” analysis
  • Best Case and Worst Case Scenarios
  • Simulations and Probability distributions

 

  1. Control over cash flow
  • “water-fall” arrangement
  • “Reserved Discretions”

 Inter-creditor matters

  • Between on-shore and off-shore lenders
  • Amongst offshore lenders
  • Differential rights
  • Decision making process

 Negotiating a Term Sheet

 Monitoring

 Note:   If it is so desired, the Course could conclude with a Final Day Presentation to a (simulated) Credit Committee of the lending bank/institution by the students for Credit approval (or otherwise) justifying their recommendations with appropriate risk analysis, proposed mitigation measures, suggested important covenants and SWOT analysis etc (two Senior Faculty Members of the University or Industry professionals could invited to be members of this Credit Committee).

This exercise gives the students a simulated experience for Credit Appraisal and presenting the same to a Credit Committee. And hones up the soft skills of ‘presentation’, ‘team work’, ‘analytical skills’.

The above exercise is recommended.