Good Inroads, Better Access to Corporate, Project Finance Models

Known also as Balance Sheet Financing, corporate finance and project finance are designed to meet the requirement of business funding through debt and equity. The two are thinly divided by their processes of sourcing and backup securities. But the overall financials of a company are managed through corporate finance, beginning with financial modeling, capital raising, and fund usage optimization.

Project Finance, on the contrary, is needed for a specific project funding with project assets and cash flows offered as primary security outside some additional collaterals. However, corporate finance could at times be used to fund certain projects, where management decides to put all its projects/ business segments, among others under one umbrella and consolidate its cash flows.

Corporate Finance ensures optimal usage of available capital and maximization of shareholders’ wealth by respectively sharing projects/segments risks and rewards. It particularly helps companies having various projects of similar risk profile, but the success or failure of such projects directly affects the corporate balance with company overall assets held collateral and open to be laid claim upon in the event of payment default to lenders.

Project Finance could be capital intensive, highly risky, and time-taking as projects are usually of a long gestation period. It doesn’t even minimally impact the corporate balance sheet as the right to claim on the assets in the event of failure to repay is only on the assets of the project and those of additional securities offered, if any, and not of the parent company.

Corporate Finance is generally a more suitable financing model for MSMEs, businesses with projects of similar risk profile, or organic expansion and of management, seeking operational and financial flexibility. The Project Finance model is more applicable to high-risk projects, inorganic expansions, JV/PPP projects, and projects/segments of different risk profiles, leveraging on the most important concept, project development.

On a larger note, project finance is applied to public funding of infrastructure and long-term, capital-intensive projects, utilizing a non-recourse or limited recourse financial structure as a debtor with a non-recourse loan does not suffer any additional payment beyond the seizure of the assets. Similarly, a project debt usually held in a sufficient minority subsidiary is never consolidated on the balance sheet of the respective shareholders, being an off-balance sheet item.

On the whole, project finance is almost the only opportunity to implement large projects for companies of limited assets.

Project Development

An important concept in project finance, financing is done on the sequential progress of the project. Understanding project development with all its three stages, comprising the Pre-bid stage, Contract negotiation stage, and Money-raising stage is crucial.

Necessary Companions in Project Finance

Project finance is always of many parties, including sponsors- those sponsoring the project, creditors- financial institutions lending money for projects, financial advisors- those that help the parties to understand the possible return on investments they make. They could be on both sides (the lenders and borrowers), technical advisors- hired as technical consultants for effective execution of the project, legal advisors that help in legal matters, debt financiers – those that give secured loans for projects on the basis of project assets, equity investors- those that invest money in lieu of shares, regulatory agencies- agencies that oversee government regulations vis-a-vis project intricacies, and then multilateral agencies, most of the World Bank group.

Financial Model

A sponsor investing in a project requires knowing how the project will go. It takes the help of an expert such as the SSAC Advisory and Professionals to do the financial modeling, a spreadsheet to calculate the financial model to understand the projected future and cash flow before it could be acceptable to investors.

Required Documents for Presentation

A few documents of utter importance for presentation include shareholder/sponsor documents, finance documents, project documents, and other projects documents

Due Diligence in Project Finance

Due diligence in project finance involves a thorough review of all proposals about the project. An appraisal note ideally contains a write up on the company’s background, its management and shareholding pattern, its physical and financial performance, the purpose of the project to be funded, details of costs involved and means of financing, the market for the company’s products, future prospects and profitability projections, risk analysis and terms and conditions of sanction.

Due diligence in project finance consists of multiple steps aimed at ensuring the most comprehensive analysis, including assessment of promoter history and background, evaluation of the company and project business model, legal due diligence, analysis of financial statements and capital structure, determination of major risks associated with the project, analysis of tax effects, credit analysis and evaluation of loan terms and project valuation.

Obviously, there are multiple steps when conducting due diligence in project finance, but four mostly require significant evaluation. They are the Assessment of Promoter History and Background, Evaluation of the Company and Project Business Model, Legal Due Diligence, and Analysis of Financial Statements and Structure.

SSAC Advisory and Professionals is a long-established advisory on both Corporate finance and Project finance. In corporate finance, it deals with funding and capital structure matters, looking stridently into key propositions on financing, including alternative investments, restructuring, working capital management, tied closely to the finance consulting segment within operations consulting, IPOs, and capital markets.

Companies in financial difficulties should normally turn to crisis & recovery advisors and at SSAC they are aided to get a grip on the crisis situation (short term) and a turnaround plan is put in place for the longer term.

As the SSAC digs more into entrenching its financial consulting for large projects with the best of personnel in the practice, it’s often now involved in a detailed analysis of complex business processes with serious preparatory work and justification for each recommended action. It boasts of erudite financial experts with access to reports and other key information that could constitute a company’s trade secret. For all of that, the firm radiates love and exhibits a high level of trust for and among clients.

Now of a clear scientific base in its systematic approach to companies’ financial health analysis, they are able to quickly identify problems slowing down clients’ business development and jeopardizing projects and offer clear and feasible solutions to them.

SSAC aids clients to make the right decisions for effective business management and makes it possible for them to properly allocate their assets and make the right decisions in all areas, including investments in new projects. Clients get more opportunities to develop their businesses, relying on effective long-term strategies as they receive infallible professional support in obtaining the best sources of financing for their projects and choice of the most suitable bank, gaining access to extensive knowledge of the financial markets.

The SSAC finance team helps to weigh the advantages and disadvantages of each financial model, choosing for you the best way to grow your business, to mitigate risks by monitoring financial statements, preparing appropriate documentation for an investment project, getting you the right funding sources after ensuring that you are of good capital structure, your investment decisions are right, you are on long-term infrastructure, industrial projects and public services funding, using non-recourse or limited recourse financial structure.

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