I) Why Project Finance
Firstly it is important to take into consideration the importance of growth and development for the major industries that maintain the economy of countries around the world, and for this matter the constant creation and renovation of infrastructure is totally necessary, in order to facilitate and accelerate the growth period of many industries driving each specific country.
The second reason that to choose Project Finance is due to the scope and the necessary means involved in making a successful venture in this type of activity:
Project Finance involves not only major capital investments, covered most of the time by different lenders or syndicate groups, but also intense and extensive risk management which definitely have to be managed by a well formulated plan from day one in order to prevent any type of delays on projects of such enormous importance.
II) What is Project Finance?
Project Finance is a typical way of financing long-term capital intensive projects (mining facilities, transportation systems, telecommunication, pipelines, public utility, infrastructure, chemical plants …). In general, public or private “sponsors” or investors use this method when they do not have enough capital nor access to traditional funding or do not want to take the risk and debt responsibility on themselves. Project Finance enables the risk to be shared among many sponsors and to separate this project from all other assets the investors might possess. The main guarantee for repayment is the project’s capacity to generate cash inflows.
Projects finances by definition are capital intensive projects of such magnitude and scale that this immediately presented great challenges in mana...
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...but the one which I feel was most appropriate to us was the following.
“Never invest in anything that if the stock market was to close for ten years you wouldn’t be prepared to hold.”
Project finance projects definitely fit the bill. These projects derive the majority of their value from a single asset. This asset is generally something which must be built out of necessity such as the basic infrastructure of a country namely a functioning road and rail network or bridges to connect industrial areas with high value to the national economy. The value is achieved over the long term of the project with companies availing of every opportunity to boost their internal rate of return with makes such as the shareholder loan and generous government subsidies. So to coincide with what Mr. Buffet has said project finance investments are a viable long term investment option.
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