Question 2: What does project financing mean?

The so-called project financing refers to the financing based on the credit of the project itself, and the project financing corresponds to enterprise financing. Project financing is financing arranged by a specific economic entity. When the lender initially considers arranging the loan, he is satisfied with using the cash flow and income of the economic entity as the source of funds to repay the loan, and with using the assets of the economic entity as the security guarantee of the loan.

Banks can only rely on project assets or project income to recover loan principal and interest when financing through project financing. In this kind of financing, the risks undertaken by banks are far greater than those of corporate financing. If the project fails, the bank may not be able to recover the loan principal and interest, so the project structure is often very complicated. In order to realize this complex structure, a lot of preliminary work needs to be done, and the preliminary cost is high.

As an important branch of international finance, project financing has developed into an effective and increasingly mature means to raise funds for the construction and development of large-scale engineering projects in the past 30 years. Different from traditional financing methods, the fundamental feature of project financing is that financing depends not only on the credit guarantee or asset value of the project sponsor, but also on the project's own assets and future cash flow to consider the loan repayment guarantee. The State Planning Commission and the foreign exchange bureau have made interim provisions on overseas project financing. According to the regulations, project financing refers to the financing method of raising foreign exchange funds overseas in the name of domestic construction projects, and only taking the expected income and assets of the project as the debt repayment responsibility.

Project financing has the following attributes:

(1) Creditors have no recourse to assets and income other than construction in progress;

(2) Domestic institutions do not mortgage, pledge or repay debts with assets, rights and benefits other than construction projects;

(3) Domestic institutions do not provide any form of financing guarantee. At the same time, it is stipulated that project financing is mainly applicable to infrastructure projects such as power generation, high-grade highways, bridges, tunnels, urban water supply and sewage treatment plants, and other construction projects with large investment scale and long-term stable expected income.

Project financing has the following characteristics:

1. At least the project sponsor, project company and fund provider are involved.

2. The fund provider mainly relies on the project's own assets and future cash flow as the guarantee of fund repayment.

3. Project financing is a financing method with no recourse or limited recourse, that is, if the project cannot repay the loan funds in the future, the creditors can only get the benefits and assets of the project itself, but have no right to get their hands on other assets of the project sponsors.

4. The main difference between project financing and traditional financing is that according to the traditional financing method, the lender lends money to the borrower, and then the borrower invests the borrowed money in a project, and the obligation to repay the debt is borne by the borrower. Lenders value the borrower's credit, operating conditions, capital structure, and the degree of assets and liabilities. , rather than the success or failure of the project he runs, because the borrower has other assets that can be used to pay off debts. However, according to the way of project financing, the sponsors or organizers of the project will generally set up a new project company to raise funds for the project, and the lender will directly lend the funds to the project company, not the project sponsor. In this case, the obligation to repay the loan is borne by the project company, not by the undertaker, and the lender's loan will be repaid from the income obtained after the project is put into production. Therefore, the lender values the economy, possibility and income of the project. The success or failure of the project is of decisive significance for the lender to recover the loan. The key to the success or failure of the project lies in the fact that the project company should have accurate and complete information sources and channels in the analysis and demonstration of investment projects, conduct careful research and analysis on the market and effectively organize and implement it, fully understand and be familiar with the construction procedures of investment projects, foresee possible problems in the implementation of the projects and take corresponding countermeasures. These professional and technical jobs are usually served as financial consultants by professional financial consulting companies in some large-scale international investment projects. As an intermediary between fundraisers and investors in the capital market, financial consulting companies can make strict, scientific and technical financial planning for projects, form the smallest capital structure and make rational investment decisions in the process of asset planning and investment by virtue of their understanding of the market and the advantages of professional financial analysts.

Types of project financing:

Project financing without recourse

Project financing without recourse is also called pure project financing. In this financing mode, the principal and interest of the loan depend entirely on the operational efficiency of the project. At the same time, in order to protect their own interests, the lending bank must obtain property rights guarantee from the assets owned by the project. If the project fails to be completed or fails to operate for various reasons, and its assets or income are not enough to pay off all the loans, the lending bank has no right to recover from the project sponsor.

Project financing with recourse

In addition to taking the operating income of the loan project as the repayment source, the loan bank obtains the real right guarantee, and also requires the third party other than the project subject to provide the guarantee. The lending bank has the right to recover from the third party guarantor. However, the guarantor's liability for debt is limited to the amount of guarantee provided by him, so it is called limited recourse project financing.

Application conditions for project financing:

1. The project itself has been approved by government departments.

2. The project feasibility study report and project design budget have been reviewed and approved by relevant government departments.

3. Introduce foreign technology, equipment and patents. It has been approved by the government's economic and trade department and has gone through relevant procedures.

4. The technical equipment of the project products is advanced and applicable, with complete supporting facilities and clear technical support.

5. The production scale of the project is reasonable.

6. It is estimated that the project products have good market prospects and development potential and strong profitability.

7. The project investment cost and various expenses are predicted reasonably.

8. The raw materials required for the production of the project have a stable source, and a supply contract or letter of intent has been signed.

9. The project construction site and construction land have been implemented.

10, water, electricity, communication and other supporting facilities required for project construction and production have been implemented.

1 1. The project has good economic and social benefits.

12. Other construction conditions related to the project have been implemented.