What are some of the ways to fund project finance?
Grants
Debt
Equity
Capital Markets
What are the infrastructure needs of Africa?
- Electricity
- Irrigation
- Water & Treatment
- Transport
- Telecoms
What are the different phases of a Project Finance Deal
- Pre-pre Feasibility
- Pre-Feasibility
- Banking Feasibility
- Financial Close / Construction Funding
- Completion of Project
- COD - commercial operation date / Project Financing
How can IRR be used in Project Finance?
- How efficient are the internal processes
- How good are managers in producing income
- Compare IRR to WACC
- CANNOT BE USED TO VALUE PROJECTS
What are some of the other methods of project valuation?
- Benefit / Cost Ratio
- Cost-Effectiveness
- Portfolio Theory
? Payback Period
What are the 4 commonly used debt repayment calculations & ratios
- Debt Service Coverage ratio (DSCR)
- Project Life Coverage Ratio (PLCR)
- Loan Life Coverage Ratio (LLCR)
- Gearing (DER)
How do you calculate the DER and what does it mean?
Total long term liabilities / (Equity + Quasi-equity)
Higher DER = higher risk, more debt being used
Depends on lender’s comfort level
Depends on lender’s comfort level
How do you calculate the DSCR and what does it mean?
ADSCR= Available cashflow for debt service / (principal + interest payments)
- Ability of project’s cashflows to meet the annual debt service
- Higher Debt service coverage = reduced risk
How do you calculate the LLCR and what does it mean?
LLCR = NPV of available cashflow for debt service over the debt period / Total debt
Ability to cover debt service over entire period of loan
Above 1.7x
How do you calculate the PLCR and what does it mean?
PLCR = NPV of available cashflow over the project period / total debt
Cover debt over the entire duration of the project
Above 1.7x times
What do the different levels of DSCR indicate?
Ideally 1.3 times
- Very strong = 2 x
- Strong = 1.5 x
- Modest = 1.3x
- Poor = likely to miss scheduled debt service payments
How could the sovereign rating impact your project finance deal?
- influence on our interest rates
- government borrowing cost will increase, therefore less funds available for infrastructure spending
- the rand may decline
- inflation may go up
- the risk free rate of the Cost of Equity will change, which would influence your WACC, and therefor your NPV
What are the 4 steps in constructing assumptions?
- Assumptions - make brief, clear-cut descriptions of assumptions
- Constraints - major limitations of the project (timelines / resources, etc. )
- Dependencies (major dependencies between various assumptions)
- Adjustments (make adjustments according to changes)
