Risks associated with

International Project Financing

Submitted by:
Sajal Nahar G-44
Akshay Arora G-48
Introduction – What is a Project?
A Project is normally a long-term infrastructure, industrial or
public services scheme, development or undertaking having:

 large size.
 Intensive capital requirement – Capital Intensive.
 finite and long Life.
 few diversification opportunities i.e. assetsspecific.
 Stand alone entity.
 high operating margins.
 Significant free cash flows.
Introduction – Types of Project.
Motorway and expressway.
Metro, subway and other mass transit systems.
Dams.
Railway network and service – both passenger and cargo.
Power plants and othercharged utilities.
Port and terminals.
Airports and terminals.
Mines andnatural resource explorations.
Large new industrial undertakings – [no expansion and
extensions.
Large residential and commercialbuildings.
Introduction – What is Project Financing?
International Project Finance Association (IPFA) defined project
financing as:

“The financing of long-term infrastructure, industrial projects

and public services based upon a non-recourse or limited
recourse financial structure where project debt and equity used
to finance the project are paid back from the cash flows
generated by theproject.”

Project finance is especially attractive to the private sector

because they can fund major projects off balance sheet.
Part – 2
Stages in ProjectFinancing.
 Project identification
 Risk identification & minimizing Pre Financing Stage
 Technical and financialfeasibility
 Equity arrangement
 Negotiation and syndication Financing Stage
 Commitments and documentation
 Disbursement.
 Monitoring and review
 Financial Closure / Project Closure Post Financing
Stage
 Repayments & Subsequentmonitoring.
Risk Associated with International
project Financing
Types Of Risk Associated with International
financing.
1.Financial risk
2.Foreign Exchange Risk
3.Economic risk
4.Political risk
5.Counter party Risk
6.Liquidity Risk
7.Delivery Risk
8.Rollover Risk
Financial Risk

International projects are prone to greater financial risk as

a bulk of finance is in the form of debt. The major factors
affecting financial risk are degree of indebtedness, the
terms and conditions of repayment of debt and currency
used.
Foreign Exchange Risk

As exchange rates change, the values of the foreign

assets and liabilities change accordingly. For a
corporation, exchange rate risk is the sensitivity of the
value of the corporation when the exchange rates
change.
Economic Risks

Economic risk is risk created by changes in the economy.

Typically, it is related to technological changes, the actions of
competitors, shifts in consumer preferences, etc. Ideally, a pure
domestic firm is affected only by domestic economic conditions
– the domestic economic risk. However, in today’s integrated
world economy, the concept of a pure domestic firm has less
practical relevance. Many firms that appear strictly pure
domestic confront foreign economic risk indirectly. (E.g.: local
restaurant/dept store, real estate agent)
Political Risks
Political risk is risk created by political changes or instability in a country.
These factors include, but are not limited to, nationalization,
confiscation, price controls, foreign exchange and capital controls,
administrative hurdles, uncertain property rights, discriminative or
arbitrary regulations on business practices (hiring, contract negotiation),
civil wars, riots, terrorism, etc. Each country in the world presents a
different political profile and represents a unique source of political risk
that firms must assess and manage when they make foreign investments
Other Risks
• Counter party risks-The risk that a counter party will default on a financial
obligation.
• Liquidity Risk -The risk that a financial position cannot be sold quickly
at prevailing prices.

• Delivery Risk – The risk that a buyer will not deliver payment of funds
after a seller has delivered securities or foreign exchange that were
purchased.

• Rollover Risk – The risk of being closed out from a financial market and
unable to renew (or roll over) a short-term contract.
THANK YOU