Project finance is nothing but sourcing funds to a long term infrastructure project, or any other project, and using the cash flow generated from the project to payback the financing procured.
Every project needs financing to implement and run it successfully, thus preferring to finance the project in an off-balance sheet manner is a useful tool for companies that wish to avoid the issuance of a corporate repayment guarantee.he project finance route permits the sponsor to extend their debt capacity by enabling the sponsor to finance the project on someone’s credit, which could be the purchaser of the project’s outputs.
Project finance (PF) is a form of financing based on a standalone entity created by the sponsors, with highly levered capital structures and concentrated equity and debt ownership
It Provides long-term, limited recourse or non-recourse loans used to finance large commercial, industrial, infrastructure, and sovereign projects throughout the world.
The debt and repayment structure are based on the project finance model where projected cash flow of the project rather than the balance sheets of the project sponsor.
Involves number of equity participants, who can be project sponsors or equity investors, and a consortium of lenders that provide the project loan to the project.
Project finance loans are almost always extended on a non-recourse or limited recourse basis and are secured by the project assets and operations.
Repayment of the loans occurs entirely from project cash flow, not from the assets or credit of the borrower.
Opportunity for risk sharing
Extending the debt capacity
The release of free cash flows
Maintaining a competitive advantage in a competitive market