Project company - a limited liability organization, partnership or JV. Those seeking to register a project company in a foreign jurisdiction should keep in mind that such a structure will in most cases be a borrower. It can conclude a concession agreement on financing a project abroad & participate in the preparation of project documentation. If a borrower is an SPV, lenders will seek to set up a new company in a foreign jurisdiction & impose severe restrictions on a borrower's ability to engage in any non-project activity.
Those seeking to establish a project company in Europe or Asia should keep in mind that such an entity isn't allowed to:
- engage in any business or activity except for ownership & management of a project;
- create or permit the existence of security interest in any present/future assets;
- extend any loans, credits or compensation;
- issue additional shares or change the rights associated with already issued shares;
- sell, lease, transfer or otherwise dispose of assets;
- bear any debt, excluding a loan for a project, if it isn’t subordinated;
- acquire any assets or make any investments;
- amend constituent documents.
Project sponsor - an organization that manages a project. Normally, a sponsor becomes the owner of the capital & makes a profit either through equity participation or management contracts. Sponsors may be required to provide guarantees regarding certain obligations or risks associated with a project.
SPV - a separate legal entity created by a project’s sponsors. It acts as a kind of ‘protective shield’ between creditors & a parent company, preventing loan leakage & property seizure.
3rd Party Investors - project financing abroad implies 3rd party investments. Unlike regular investors who will sell a project once it’s completed, 3rd party investors tend to invest in long-term projects abroad.
Banks - banks from a host country can also finance a project abroad. Because the majority of financing projects are pretty complex, they must be financed by big banks with experience in a respective market.
Other Funding Parties - they’re usually:
- hedging counterparties;
- object agents;
- trustees/security agents.
If you decide to initiate an international project finance transaction, you should keep in mind that banks/financial institutions involved in a transaction play several roles:
- holding a borrower's accounts;
- liaising with a sponsor & auditor to agree on a financial model;
- liaising with a sponsor & technical consultant regarding construction & other technical aspects.
Contractor - those planning to finance an infrastructure project in a European jurisdiction should keep in mind that a contractor should possess experience in implementing similar projects. A project company & lenders should make sure that a contractor assumes joint responsibility or separate obligations under a contract. Lenders tend to prefer that a project company not manage a project. According to them, management functions should be assumed by a creditworthy individual who can be sued for transactions pertaining to financing a project abroad.
In most infrastructure projects, a separate company will be appointed as an operator after a project is completed. It’ll be responsible for ensuring that the day-to-day management of a project is carried out in accordance with previously agreed parameters & guidelines. This is usually a company with experience in asset management or an enterprise based in the host country.
Financing an Infrastructure Project in a Foreign Jurisdiction
As in the case with a contractor, lenders are interested in choosing an operator. They will want to make sure that the latter has a track record of successful projects of a similar type.
Project Finance in Europe & Asia: Experts
Experts - consulting & professional firms appointed by lenders. Their main role is to advise on the legal aspects of project finance, including technical, insurance & environmental issues. Consulting companies are selected based on their expertise in a specific area & are recruited to conduct an initial assessment prior to completion of a transaction.
Government of a Host Country - in some developing countries, the government may be required to enter into an agreement to provide project financing. It can also issue consents & permits both at the start of the project & throughout a transaction. In other cases, an agency in a host country may be the buyer or distributor of products generated by a project or act as a shareholder in a project company.
Project Finance Activity Abroad: Suppliers & Buyers
These are companies that supply essential goods/services in connection with a specific project. If a project's products aren’t available to the general public, a project company may enter into an agreement to purchase products on a long-term basis with a specified buyer.
In some projects, basic materials & products are bought or sold on a take-or-pay basis. In other words, buyers must pay for what they agreed to buy, regardless of whether they accept shipping costs.
Entering the Project Finance Market Abroad: Insurers
Insurers play a critical role in most projects. If an accident occurs in the course of such activities, sponsors & lenders tend to retain insurers’ services. Most lenders prefer insurance to be provided by large international companies; hence, they’re reluctant to retain services of insurance companies in developing countries. In some industries, large enterprises set up their own insurance companies, either at their own expense or through a syndicate with other large firms.
Considering registering a project company in a foreign jurisdiction? Need advice on project finance in the EU or Asia? Why not contact IQ Decision UK?