A beginner’s guide to project finance

The following Banking & Finance practice note provides comprehensive and up to date legal information covering:

  • A beginner’s guide to project finance
  • Key features of project finance
  • Due diligence and ‘bankability’
  • Sources of finance
  • Projects and parties
  • Project risk and risk allocation
  • Types of project
  • Key project parties in a project finance transaction
  • Key finance parties in project finance transactions
  • Other specialist advisers
  • More...

A beginner’s guide to project finance

This Practice Note sets out a basic introduction to project finance focusing on:

  1. due diligence and ‘bankability’

  2. sources of finance for projects

  3. project risk and allocation

  4. types of project

  5. the main project parties

  6. the finance parties

  7. key finance documents

  8. key finance terms

  9. key project documents

  10. security and quasi-security in project finance transactions

  11. PFI/PPP projects and procurement

  12. the Equator Principles, and

  13. green bonds

Key features of project finance

The term ‘project finance’ generally refers to the debt element of the funding for a project.

The ‘project’ commonly involves:

  1. constructing and/or operating something tangible like a road, bridge or a school, or

  2. exploiting something tangible like gas, oil or gold

The Basel II: International Convergence of Capital Measurement and Capital Standards framework (Basel II) defines project finance as:

‘a method of funding in which the lender looks primarily to the revenues generated by a single project, both as the source of repayment and as security for the exposure.’

It goes on to say that:

‘This type of financing is usually for large, complex and expensive installations that might include, for example, power plants, chemical processing plants, mines, transportation infrastructure, environment, and telecommunications infrastructure. Project finance may take the form of financing of the construction of a new capital installation, or refinancing of an existing installation, with or without improvements. In such transactions, the lender is usually paid solely

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