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Stock long term debt to equity ratio a widely used

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Unformatted text preview: s ability to meet all of its fixed charge obligations Cash Flow Per Share A measure of the discretionary funds over and above expenses that are available for use by the firm After tax Profits + Depreciation Number of Common Shares Outstanding In Construction In Liquidity Ratios: Liquidity Short term obligations: Short Account Payable Account Accrued Interest and Employee Benefits Accrued Advanced billings on contracts Advanced Short Term Assets Short Cash Accounts Receivable Cash Inventory Inventory Contract in Progress Contract Relation Between Contracting Firm, Sponsor and Project Sponsor Contracting Firm Capital Investment & Working Capital + Operating Cost + Project Project Revenue + Sponsor Fund Transfer Traditional Financing Structure Traditional Stockholders/ Investors + Loan Banks and Financial Institutions + Dividend Interest Investment in the Company + + Sponsor + Profit + Project Capital Investment Investors Lenders Equity Project Finance Debt. Contractor EPC Contract Maintenance Contract Toll Payments Road Users Toll Road Project Finance Structure Operator Finance Operation Contract Proj. Company Concession Agreement Contracting Authority Support Agreement Government Investors Equity Contractor Lenders Project Finance Debt. Operator Finance Construction Contract Operation & Maintenance Contract Support Agreement Proj. Company Input Supply Contract Input Supplier Off-take Contract OR Offtaker Simplified Project Finance Structure Concession Agreement or License Government or other public-sector authority Financing – Gross Cashflows Design/Preliminary years OWNER investment operation incomes owner cashflow owner cum cashflow 1 Construction 2 3 4 5 6 7 8 9 10 ($10,000,000) ($20,000,000) $2,000,000 $4,000,000 $6,000,000 $6,000,000 $0 ($10,000,000) ($20,000,000) $2,000,000 $4,000,000 $6,000,000 $6,000,000 $0 ($10,000,000) ($30,000,000) ($28,000,000) ($24,000,000) ($18,000,000) ($12,000,000) CONTRACTOR costs ($4,000,000) ($7,000,000) ($14,000,000) revenues $0 $10,000,000 $20,000,000 contractor cashflow ($4,000,000) $3,000,000 $6,000,000 contractor cum cashf ($4,000,000) ($1,000,000) $5,000,000 $0 $0 $0 $5,000,000 $0 $0 $0 $5,000,000 $0 $0 $0 $5,000,000 $0 $0 $0 $5,000,000 $6,000,000 $6,000,000 ($6,000,000) $6,000,000 $6,000,000 $0 $6,000,000 $6,000,000 $6,000,000 $0 $0 $0 $5,000,000 $0 $0 $0 $5,000,000 $0 $0 $0 $5,000,000 Owner investment = contractor revenue $10,000,000 $5,000,000 $0 ($5,000,000) ($10,000,000) ($15,000,000) ($20,000,000) ($25,000,000) ($30,000,000) ($35,000,000) 1 2 3 4 5 6 7 8 9 10 11 owner cum cashflow contractor cum cashflow • Early expenditure • Takes time to get revenue Typical Project Structure for IPP Typical Multi-lateral, bi-lateral and Export Credit Agencies Bank Syndicate Sponsor A Non-Recourse DEBT Inter-creditor Agreement Sponsor B Sponsor C EQUITY Shareholder Agreement Board of Directors 70% 30% Labor Project Company (Power Plant) Gas Input Under a supply contract Power Output Under a purchase contract Technol. License Equipment Contract (turbines) Construction Contract (EPC Contract) Adapted from: Esty & Sesia; HBS Oct. 2007 Operating & Maint. Contract Host Government: legal system, permits, Regulation, property rights, etc. Private Owners w/Collateral Facility Distinct Financing Periods Distinct Short-term construction loan Short Bridge Debt Bridge Risky (and hence expensive!) Risky Borrowed so owner can pay for construction (cost) Borrowed Long-term mortgage Long Senior Debt Senior Typically facility is collateral Typically Pays for operations and Construction financing debts Pays Typically much lower interest Typically Loans often negotiated as a package Loans construction w/o tangible operation w/ tangible time Typical Terms Typical Project Company has to complete the project Project under the terms of contract Public Authority provides the land and the rightPublic of-way Ownership remains by the Public Sector Ownership Concession is given for limited period of time Concession Operation and Management is in the hand of Operation Project Company Project Finance and Privatization Project Project finance should be distinguished from privatization, Project which: either conveys the ownership of public-sector assets to the sector private sector-this does not necessarily involve project finance; private this a privatized former state-owned company may raise any privatized owned finance required through a corporate loan. finance or provides for services to be supplied by a private company that had ad previously been supplied by the public sector (e.g., street cleaning) – previously ning) again, this does not necessarily involve project finance: the priivate vate company may not have to incur major new capital expenditure and so not require any finance at all, or may use a corporate loan to raise the not aise finance to make the investment required to provide the service. finance Project finance may come into the picture if a company needs finance for the construction of public infrastructure on the basis of a contract or license, e.g., An Off-take Contract, based on which a project will be constructed to sell its An ell output to a public-sector body (e.g., construction of a power station to sell output sector electricity to a stat-owned power company) electricity A Concession Agreement under which a project will be constructed to Co...
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