Long-Term Project Finance: All You Need To Know


 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).

Sponsors in project finance

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:

  • Industrial sponsors, who are often associated with a downstream or upstream organization, are an important part of project finance. Examples: The Industrial Finance Corporation of India (IFCI), Industrial Development Bank of India (IDBI)
  • Public sponsors, for example, include national and local governments, municipalities, and municipalized businesses concerned with social welfare, etc.
  • Contractors/sponsors - Companies that design, build, or run large plants and are interested in participating in the project by providing stock or subordinated financing for the project.
  • Financial sponsors/investors – Firms that participate in a project finance initiative with the explicit goal of investing funds in high-profit transactions. Example: SBICAP.

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#Long Term Project Finance #Project Finance

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