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Project Finance

In: Business and Management

Submitted By godfredabledu
Words 2029
Pages 9
Project Finance
By
Godfred Kwame Abledu

Abstract Project financing is largely an exercise in the equitable allocation of a project’s risks between the various stakeholders of the project. Indeed, the genesis of the financing technique can be traced back to this principle. Roman and Greek merchants used project financing techniques in order to share the risks inherent to maritime trading. A loan would be advanced to a shipping merchant on the agreement that such loan would be repaid only through the sale of cargo brought back by the voyage (i.e. the financing would be repaid by the ‘internally generated cash flows of the project’, to use modern project financing terminology). The purpose of this paper therefore is to provide an overview of Project Finance. The paper touched on the Motivation for the increased reliance on project financing to fund investments, advantages that project finance has over traditional corporate finance, the major short-comings of project finance and a typical project finance transaction.

Table of Contents Assignment 1 1 Abstract 2 A. Introduction 4 B. Why is project financing being increasingly relied on to fund investments? 4 C. What advantages does it have over traditional corporate finance? 6 D. What are the major short-comings of project finance? 7 E. Typical Project finance Transaction 8 References 10

A. Introduction Unlike the traditional loan arrangements, project finance is a financial structure which facilitate the arrangements for project but the repayment of such loans are exclusively defrayed from the cash flows generated from the operations of the project and are specifically used in financing large-scale projects in the areas of oil, energy, petrochemicals, road and railway infrastructure, electricity and water supply (Bretton Woods Project, 2012; Fight, 2005; Kwakkenbos, 2012). According to Esty...

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