Project Finance
Description
In Project Finance: Applications and Insights to Emerging Markets Infrastructure, distinguished professor and author Paul Clifford insightfully applies the fundamental principles of project finance structuring to infrastructure investments in emerging markets.
Using leading emerging market case studies to illuminate the underlying themes of the book, the author provides a practitioner's perspective and incisive analysis of concepts crucial to a complete understanding of project finance in emerging markets, including:
· Risk management
· ESG and impact investing
· The emergence of new global multilateral development banks
· China's Belt and Road Initiative
Project Finance bridges the gap between theoretical infrastructure development, investment, and finance and the implementation of that theory with instructive and applicable case studies. Throughout, the author relies on a grounded and quantitative approach, combining the principles of corporate finance with straightforward explanations of underlying technologies, frameworks, and national policies.
This book is an invaluable resource for undergraduate and graduate students in finance, as well as professionals who are expected to deal with project and infrastructure finance in emerging markets.
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PAUL D. CLIFFORD is Adjunct Professor at Columbia Business School. He also teaches at The City University of New York. He is a consultant for in-house programs at international banks and private sector energy companies. Formerly, he was Director of Project Finance for Standard Chartered PLC and ANZ Bank.
Content
Preface xi
Acknowledgments xv
Chapter 1 Principles and Application of Project Finance 1
Origins and History of Project Finance 1
Why Sponsors Use Project Finance 2
Project Finance-Asset Class Performance 4
Global Infrastructure Outlook 9
The Infrastructure Gap in Emerging Markets 12
Focus-Asia Infrastructure Needs 13
Endnotes 14
Chapter 2 Project Finance-Risk Analysis and Mitigation 17
Commercial versus Contract Viability 19
Sponsor Risk 19
Political Risk 21
Construction and Completion Risk 22
Operation and Maintenance Risk 25
Supply Risks 26
Reserve Risk 27
Sales/Offtake Risk 27
Approvals and Permits 30
Social and Environmental Considerations 30
Financial Risks 31
Force Majeure Risk 32
Case Study: Mozal Aluminum Project, Mozambique 33
Endnotes 37
Chapter 3 Project Finance Agreements and Loan Documentation 39
Construction Contracts in Project Finance 41
Operations and Maintenance Contracts in Project Finance 42
Offtake Contracts/Concession Agreements 42
Supply Contracts 43
Project Finance Loan Documentation 44
Key Lender Protection Mechanisms and Strategies for Negotiating Finance Agreements 51
Case Study: Samba Drillship Oil and Gas Project, Brazil 52
Chapter 4 Risks and Challenges of Project Financing in Emerging Markets 61
Track Record of Project Finance in Emerging Markets-The Asian IPP Experience 62
Currency Mismatch-Lessons Learned from the Asian Currency Crisis 63
How the Asian Currency Crisis Transformed the Approach to Project Finance 65
Role of Multilateral, Bilateral Development Banks, and Export Credit Agencies 68
Stakeholder Alignment Issues 71
Mitigating Political and Sovereign Risks 71
Case Study: Dabhol Power Project, India 72
Endnotes 80
Chapter 5 Sources of Financing for Emerging Markets 81
Multilateral Development Banks (MDBs) 84
Bilateral Development Banks (BDBs) 85
Export Credit Agencies (ECAs) 85
Commercial Banks 87
Political Risk Insurance Market-Breach of Contract and Non-Honoring of Financial Guarantees 88
Project Bonds 89
Equipment Suppliers and Financing 90
Institutional Lenders (Insurance Companies, Infrastructure Funds, Pension Funds, Private Equity, and so forth) 91
Strategies for Multi-Sourced Financing in Emerging Markets 91
Case Study: Nam Theun 2 Hydro Project, Laos 92
Endnotes 99
Chapter 6 Financial Structuring and Debt Sizing 101
The Borrower/Sponsor Objectives 103
Lenders' Objectives 104
Debt Sizing and Sculpting 104
Financial Structuring-Debt Sizing and Loan Amortization 106
Lender Ratios for Debt Calibration and Stress Testing 110
Cash Traps and Sweeps 110
Case Study: Sabine Pass LNG Project and USA-Asia Energy Flows 112
Endnotes 117
Chapter 7 Environmental and Social Governance (ESG) 119
Sustainable Infrastructure Project Finance and Investing 120
Equator Principles 121
Multilateral Development Banks and ESG
Frameworks 124
IFC Impact Investing Principles 127
Green Bonds 129
Sustainability Project Financing and UN Social Development Goals (SDGs) 131
Unlocking Institutional Capital to Meet Emerging Market SDGs 134
Case Study: Manzanillo Container Port Terminal Project, Mexico 136
Endnotes 141
Chapter 8 Emerging Markets Project Finance Bonds and Local Capital Markets 143
Project Bonds versus Project Loans 145
Project Bonds Investor Base and Market Liquidity 151
Local Currency Project Bonds and Partial Credit Guarantees/Insurance Wraps 154
Case Study: Project Bond Case Study-Mong Duong 2 Power Project, Vietnam 155
Endnotes 159
Chapter 9 China's Belt and Road Initiative 161
Background and Scope of the Belt and Road Initiative 161
China's Financing Strategy for BRI Infrastructure Development 170
Emergence of New Multilateral Development Banks-Focus on the Asia Infrastructure Investment Bank 172
Endnotes 174
Chapter 10 Project Finance Market Developments and Finance Structures 177
Mini-Perm Financing Structures 177
Back-Levered Financings for Renewable Energy Projects 180
Infrastructure Guarantee Products-Bond and Private Capital Credit Enhancement 182
Endnotes 187
Bibliography 189
Index 195
