Financial Glossary: Project Finance


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Project Finance

Project Finance

International Project Finance Association (IPFA)

We can define Project Finance as follows: The financing of Long-term infrastructure, industrial projects and public services based upon a non-recourse or limited recourse financial structure where project Debt and Equity used to finance the project are paid back from the Cash flow generated by the project.

The financing is typically secured by all of the project assets, including the revenue-producing contracts. Project lenders are given a lien on all of these assets, and are able to assume control of a project if the project company has difficulties complying with the loan terms.

Usually, a special purpose entity is created for each project, thereby shielding other assets owned by a project sponsor from the detrimental effects of a project failure. As a special purpose entity, the project company has no assets other than the project. Capital contribution commitments by the owners of the project company are sometimes necessary to ensure that the project is financially sound.

Project finance is often more complicated than alternative financing methods. It is most commonly used in the mining, transportation, telecommunication and public utility industries.

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