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The characteristics of a project finance transactions
Explanation of project financing
Funded project is now considered one of the methods nontraditional loan and creditto meet the needs of medium and long-term capital for businesses. In fact, when it comes to project financing usually refers to a fund has or will finance investment projects. However, in recent years, people have come to the agreement on the use of this term. Accordingly, project finance lending activities are based mainly consider cash flow generated from the project is funded.
According to WB, project financing related to financing structure whereby the lender to consider the project cash flow used to repay project debt and assets used as collateral. To decide whether the project loan and credit, a lender based on project evaluation decisions based on reputation rather than borrowing the initiators. In case of failure to pay debts, responsibility question the initiators are limited within the amount invested in the project.
Bank loan and credit without collateral to be officially recognized in the legal system would be an opening for your personal life, your family, the right to consider and decide on the basis of loans secured or not secured by pledged assets, mortgage loan customers, third-party guarantors and responsible for their decisions. Accordingly, the services for the mortgage loan and credit in the credit institution has been formalized in the legal system of the State and so far many banks have conducted this service deployment.
Features of the project finance projects are managed independently and separate from the management of the initiator. Project revenue is only allowed to use to ensure the operation of the project and repay the bank. Starter is not used by project revenue on its other purposes.
Entities involved in project financing
The initiators are those who are committed to supporting and implementing the project. Starter projects can be a company or a group of companies, such as building contractors, who offer, the buyers or users of the product or service project. In some cases, the need to ensure complete a service provider or ensure provision of demand inputs initiated from above which companies are willing to propose and committed support the project meets the needs of the initiators. Company project: The project company will operate the company projects after projects in operation
Borrowers: in project financing, borrowers are often the project company. However in some cases, the borrower does not lend to the project company which is the company established a special purpose bank loan to implement the project and get back the money from the project to reimburse loan and credit. This company is called trust companies lend. Organization Trust guarantee: the organization is the project company or trust company entrusted loan assets of companies received guarantees donors as guaranteed by the construction, sales contracts, revenue, accounts receivable. There are also actors: banks participating in the syndicated loan, the financial leasing companies, financial advisers.
The project financing methods
In project finance, the parties may use the method of long-term credit, syndicated loan and creditor lease financing syndicated loan and creditwhich is often used to finance the construction phase project financing and lease financing used in the procurement of equipment. Besides, the parties also use the method: payment products (this is the method of financing without recourse or limited recourse guarantee form retains ownership instead through or transfer of mortgage products and revenue projects), construction as well-business transfer (often used to finance infrastructure projects on the basis of the transfer contract between the government and companies are founded by the initiative to build the project operator)