Insurance products » 

D

Project financing

Project financing is financing of a new independent economic unit (a Special Purpose Vehicle) where its revenues are a sole source of repayment of credit funds and its assets are the only collateral for instalments. The basis for the project finance is SPV's cash flow which has to ensure enough funds for reimbursement of operating costs and for repayment of the credit during the whole duration of the credit relation.

Insurance of the project financing is governed by EGAP's General Insurance Conditions for insurance of an export buyer credit against the risk of non-payment (insurance of the type "D"). Specific adjustments following from the project financing are contained in the insurance contract between EGAP and insured bank. The specific adjustments are based on exceptions from basic rules for export credits as determined by the OECD Arrangement. Among others, the exceptions enable:

• Application of the CIRR rate in fixed rate interest and in repayment period of up to 12 years
• Prolongation of the repayment period of the credit up to 14 years (CIRR + 20 basic points)
• Unequal repayment of the credit
• The first instalment within 24 months from the starting point of credit
• Dates of further instalments longer than 6 months.

Project Financing is particularly suitable for large investment projects in the power industry, extraction and processing of raw materials, metallurgy, production of construction materials, telecommunications, infrastructure and the like.

An Investor/Sponsor has to be a credible and financially sound company which is well furnished with capital for the SPV and is verifiably investing its own funds into the project, usually in the extent of 30 - 40 per cent of the total value of the project, which owns all permits, licences and rights, and which shall arrange for an environmental impact assessment of the project in the host country.

The SPV has to have negotiated contracts for the offtake of the production for the duration of the repayment of the credit. The SPV has to acquire an experienced operator as well.

An EPC Contractor responsible for realization of the project has to be sufficiently furnished with finances and has to have experience and quality references from projects of the similar type and scale. Risks arising from cooperation with main subcontractors have to be properly covered by contracts; it equally should be with responsibility for quality fulfilment, performance and functionality of the delivered installation.

In order to enable assessment of economic parameters of the project and its feasibility, the applicant for insurance of the credit (Investor/Sponsor and/or bank) shall submit particularly:

• A detailed description of the project
• A summary of sources of financing
• Business plan and cash flow for the duration of the project
• Financial reports of participating subjects for the last 3 years
• Legal opinion on basic documents
• An independent technical feasibility study
• An independent financial feasibility study
• An independent analysis of the market and of expected development of the given territory
• Contracts for offtake of the production of the SPV
• Presentation of the EPC Contractor inclusive of references
• Structure of subcontractors and their share in the project
• Proposed security of the project.