Long-term funding/financing for industrial and infrastructure projects based on a non-recourse financial structure is referred to as Long Term Project Finance. The structure often includes a syndicate of lending institutions and multiple equity investors as sponsors. Due to the capital-intensive, high-risk, and time-consuming (long gestation period) nature of such projects, independent projects of a corporation necessitate the finesse of Project Finance approaches. In such circumstances, capital is injected through the Project Finance model based on the projected cash flow from the project, with most of the project assets and cash flows maintained securely. Since it allows firms to fund huge projects off-balance-sheet, project finance appeals to the private sector (OBS).
Each project sponsor has a distinct aim for investing in the project finance venture, which may differ depending on the sponsor type. In such deals, four categories of sponsors are typically involved:
• Project Plan Identification - This process includes identifying the project's strategic plan and determining whether it is feasible. This is a crucial step as it ensures the project plan is in line with the goals of the financial services organization.
• Detecting and Lowering Risk - Risk management becomes an integral component of the entire project financing endeavour. To avoid future risks, the lender must be well-versed in the availability of resources.
A lender must thoroughly investigate the financial and technical viability of all the associated aspects of the concerned project before making any investment.
It is the most crucial part of Project Financing and is sub-categorized into the following:
The sponsor must get equity or a loan from a financial services firm whose objectives are aligned with those of the project.
This stage is used to negotiate the loan amount between the investor and the borrower and reach a consensus.
In this step, the loan terms are unanimously agreed upon and documented while keeping the project's policies in mind.
The borrower receives the agreed fund for executing operational activities after the loan documentation is completed.
The final stage entails timely project management by the project manager, project closing, and loan payback.
Muthoot Finance Ltd, L&T Finance Limited, Tata Capital Financial Services Ltd, Aditya Birla Finance Ltd, HDB Financial Services, and Power Finance Corporation Limited are examples of project financing companies in India.
Resurgent India Ltd, a SEBI registered Category-I Merchant Banker, is a top-of-the-line firm that provides project finance services in India. It has a talent pool of experienced professionals and its in-depth understanding of the nooks and corners of the market speed up the project funding process.