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Project Finance

It refers to that the project sponsor (shareholder) raises funds through establishment of a project company for such project operation, and then taking the company as borrower, its cash flow and benefits as repayment source and its assets as guaranty of loans. It is generally applied to such large-scale infrastructure projects as generating facilities, high-grade highways, bridges, tunnels, railways, airports, urban water supplies and sewage treatment plants, and other construction projects with large investment scale and long-term stable profits. It may be divided into two types, the project finance with recourse and without recourse.

FEATURES

•Achieving the non-recourse or limited recourse of finance. Under normal situations of such product design, the project sponsor shall not guarantee loan liquidation by its assets except for investing a certain share capital into the project company. Therefore, the sponsor will have bigger space and more resources to invest other projects.

•Achieving the off-balance sheet finance. If the sponsor gets a loan directly from the Bank, its ratio of liabilities increased, a part of financial indicators worsen and future financing cost will be higher. By contrast, the sponsor establishes the project company with legal personality which takes charge of project finance and construction. On condition that shares of the sponsor in the project company is no more than a certain percentage, the finance of the company will not be reflected on the balance sheet consolidated by the sponsor.