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What is Project Finance?

Listed author(s):
  • João Pinto

    ()

    (Faculdade de Economia e Gestão - Universidade Católica Portuguesa, Porto)

Project finance is the process of financing a specific economic unit that the sponsors create, in which creditors share much of the venture’s business risk and funding is obtained strictly for the project itself. Project finance, often used for capital-intensive facilities and utilities, is commonly used to segregate the credit risk of the project from that of its sponsors so that lenders, investors, and other parties will appraise the project strictly on its own merits. Project finance creates value by reducing the costs of funding, maintaining the sponsors financial flexibility, increasing the leverage ratios, avoiding contamination risk, reducing corporate taxes, improving risk management, and reducing the costs associated with market imperfections. Besides describing the economic motivations for using project finance, this paper provides details on project finance characteristics and players, presents the recent trends of project finance market, and provides some statistics of project finance (PF) lending activity in Western Europe between 2000 and 2011.

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Paper provided by Católica Porto Business School, Universidade Católica Portuguesa in its series Working Papers de Economia (Economics Working Papers) with number 01.

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Length: 19 pages
Date of creation: Apr 2014
Handle: RePEc:cap:wpaper:012014
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  1. Stulz, René M., 1984. "Optimal Hedging Policies," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 19(02), pages 127-140, June.
  2. Francesco Corielli & Stefano Gatti & Alessandro Steffanoni, 2010. "Risk Shifting through Nonfinancial Contracts: Effects on Loan Spreads and Capital Structure of Project Finance Deals," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(7), pages 1295-1320, October.
  3. Esty, Benjamin C. & Megginson, William L., 2003. "Creditor Rights, Enforcement, and Debt Ownership Structure: Evidence from the Global Syndicated Loan Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(01), pages 37-60, March.
  4. Nikolay Nenovsky & S. Statev, 2006. "Introduction," Post-Print halshs-00260898, HAL.
  5. M. Ruth & K. Donaghy & P. Kirshen, 2006. "Introduction," Chapters,in: Regional Climate Change and Variability, chapter 1 Edward Elgar Publishing.
  6. Megginson, William L., 2010. "Introduction to the special issue on project finance," Review of Financial Economics, Elsevier, vol. 19(2), pages 47-48, April.
  7. Bonetti, Veronica & Caselli, Stefano & Gatti, Stefano, 2010. "Offtaking agreements and how they impact the cost of funding for project finance deals: A clinical case study of the Quezon Power Ltd Co," Review of Financial Economics, Elsevier, vol. 19(2), pages 60-71, April.
  8. Benjamin C. Estry, 1999. "Petrozuata: A Case Study Of The Effective Use Of Project Finance," Journal of Applied Corporate Finance, Morgan Stanley, vol. 12(3), pages 26-42.
  9. Richard A. Brealey & Ian A. Cooper & Michel A. Habib, 1996. "Using Project Finance To Fund Infrastructure Investments," Journal of Applied Corporate Finance, Morgan Stanley, vol. 9(3), pages 25-39.
  10. Stefanie Kleimeier & William L. Megginson, 2000. "Are Project Finance Loans Different From Other Syndicated Credits?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 13(1), pages 75-87.
  11. Frederic Blanc-Brude & Roger Strange, 2007. "How Banks Price Loans to Public-Private Partnerships: Evidence from the European Markets," Journal of Applied Corporate Finance, Morgan Stanley, vol. 19(4), pages 94-106.
  12. Benjamin Esty, 2002. "Returns On Project-Financed Investments: Evolution And Managerial Implications," Journal of Applied Corporate Finance, Morgan Stanley, vol. 15(1), pages 71-86.
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