What is project finance?

  • Received December 24, 2016;
    Accepted February 15, 2017;
    Published May 8, 2017
  • Author(s)
    João M. Pinto
  • DOI
    http://dx.doi.org/10.21511/imfi.14(1-1).2017.06
  • Article Info
    Volume 14 2017, Issue #1 (cont.), pp. 200-210
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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 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. However, project finance transactions are complex undertakings, they have higher costs of borrowing when compared to conventional financing and the negotiation of the financing and operating agreements is time-consuming. In addition to describing the economic motivation for the use of project finance, this paper provides details on project finance characteristics and players, presents the recent trends of the project finance market and provides some statistics in relation to project finance lending activity between 2000 and 2014. Statistical analysis shows that project finance loans arranged for U.S. borrowers have higher credit spreads and upfront fees, and have higher loan size to deal size ratios when compared with loans arranged for borrowers located in W.E. On the contrary, loans closed in the U.S. have a much shorter average maturity and are much less likely to be subject to currency risk and to be closed as term loans.

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    • Fig. 1. Typical structure of a project finance deal
    • Table 1. Distribution of the sample of PF deals by year
    • Table 2. Industrial distribution of the sample of PF deals
    • Table 3. Geographic distribution of the sample of PF deals
    • Table 4. Contractual characteristics of the sample of PF loans
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  • Project finance risk management for public-private partnership

    Oleh KolodizievORCID Researcher ID, Viktoriia TyschenkoORCID , Kateryna AzizovaORCID Researcher ID doi: http://dx.doi.org/10.21511/imfi.14(4).2017.14
    Investment Management and Financial Innovations Volume 14, 2017         Issue #4         pp. 171-180 Views: 1427 Downloads: 233 TO CITE АНОТАЦІЯ

    The development of public-private partnership in Ukraine in recent years has become very important as an instrument of anti-crisis orientation. The real economic situation objectively creates the preconditions for more effective use of this mechanism and institutes of public-private partnerships in order to ensure sustainable economic development, obtain new ones and improve the quality of public services provided to the population.
    The objective of the research is to identify the components of project finance risk management and to provide justification of effective and balanced sharing of risks between public and private partners as the prerequisite and the main principle of effective implementation of public-private partnership.
    The authors used the following research methods: systemic approach, theoretical and empirical methods of scientific knowledge.
    This paper examines types of investment project financing by banks based on public-private partnership. It defines the structure of public-private partnership according to sources of capital investment in the project vehicle. The paper identifies components of the risk management process in project finance. It proves that a balanced distribution of risks between the private and public partners is the key requirement and the primary principle of effective public-private partnership. In this way, the need for mobilization of additional financial resources for implementation of investment projects calls for extended cooperation of state agencies and banks as a part of the effort of economic crisis management.

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Investment Management and Financial Innovations
Investment Management and Financial Innovations