Hotline : 

Current Position : Home > BOC MACAU > Corporate Banking > Corporate Loans
Online Banking

PROJECT FINANCE

Description

Equity investors (i.e. shareholders) set up a special purpose vehicle (SPV) to run a project. Project Finance is made against the underlying assets while cash inflow and receivables from the project will be used to service the loan. Project Finance is generally applicable to public utility companies in building infrastructures relating to electricity, water supply, telecommunications and fuel. Project Finance can extend further afield to cover construction of mammoth projects such as airports, roads, bridges, tunnels, sewage factories and hotels with stable streams of cash flow generated from the project.

Features

1.Under normal circumstances, apart from the equity injection of the investors/sponsors but shielding other assets owned by them from the detrimental effects of a project failure, giving room and resources of project sponsors to invest in other projects.

2.If financing is granted directly to the project sponsors, their leverage will be burdened thus deteriorating the financial ratios and pushing up the finance costs. Comparatively, if the shareholding of each project sponsor does not surpass a certain limit, Project Finance will not be required to reflect in the sponsor’s consolidated balance sheet.

3.Project sponsors can enjoy preferential taxation and better off the liability structure. As taxation is set off by finance costs, capital structure will be boosted thus reducing capital investment costs.

Interest Rates

Floating rate is generally applicable to Project Finance. Interest Rate is fixed in contract taking in consideration of the industry,

geographical area, shareholding structure and loan currency

Loan Tenor

Project Finance is usually a medium-term loan (over one year but below five years) or a long-term loan (over five years) with repayment by instalments.

Charges

Levy of charges according to agreement signed.

Target Customers

Entities of leading position in their own industry and project sponsors with strong background and net worth are our target customers.

Funding for any attractive project with reliable streams of cash flow can be raised by Project Finance. 

Eligibility Criteria

1.Project should have been approved by the government.

2.Delivery of feasibility study for the project and cash flow projections.

3.Delivery of signed contracts or letters of intent in respect of technology transfer, equipment and patent.

4.Undertakings and covenants from the borrower include completion guarantee, funding arrangement of cost overruns, assignment of insurance policies and offer of securities including underlying assets whether under construction or already constructed. Assignment of all income derived from the project and share pledge of shareholders.

5.Good prospect and development potential of the project, good profitability.

6.Land and location of the project has been finalised.

Information Required

1.Certificate of incorporation (copy)

2.Tax receipt

3.Work permit and agreement in relation to the construction period

4.I.D. copies of shareholders and legal representatives

5.Purchase and sales contracts, completion guarantee, cost overruns arrangement, property valuation report, financial statements of the project company and shareholding companies.

Application Procedures

1.Application of project finance

2.Submission of required information above-mentioned

3.Initiation of approval process

4.Documentation upon approval

5.Signing of loan agreement and drawdown

Comparison of Project Finance and Corporate Finance

  Project Finance Corporate Finance
Borrower Special purpose vehicle Project shareholders
Repayment Source Income from the project upon completion Assets and income from the shareholders
Guarantee Structure Complicated guarantee structure Simple guarantee structure
Cost High Low

Related Service