Corporate Business Finance

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Corporate Business Finance

Seminar 5
Project Finance

Lauren Leigh Essaram
Ruvimbo Mukorera

27 September 2010

Submitted in partial fulfilment of the duly performed requirement of International Business Finance, School of Economics and Finance, University of KwaZulu-Natal
Non-recourse financing has grown in popularity, especially in developing countries. It has done so more specifically in the basic infrastructure, natural resources and also in the energy sectors. Large-scale investments are mostly financed by project finance, due to the costs and complexities that face the standard sources of finance. The main feature of Project Finance is in the accurate estimation of cashflows and a precise
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There are a diverse range of definitions given for the term project finance, but in essence the underlying theme that runs through them all is that it involves the creation of a legally autonomous project financed with equity from one or more sponsoring firms and non-recourse debt for the purpose of investing in a capital asset (Esty, 2006: 213). In simpler terms, according to R. J. Herring (2006), project finance can be defined as a form of financing structure that is specialised in order to offer a few cost advantages when there is a large amount of capital being invested. Project finance involves the use of funds that are raised for a specific self-contained venture such as construction or a developmental project (Qfinance, 2009: 1). It is a useful and innovative financing technique that has helped with the timely financing of many important and high-profile corporate projects such as EuroTunnel, EuroDisneyland, Enron’s Dabhol Power Plant, Iridium, Globalstar, Global Crossing – the Atlantic Crossing and Pacific Crossing cables, Canary Wharf and so forth (Esty, 2006: 214). This type of financing can help with the facilitation and start of projects anywhere in the world, but is especially good for projects that are undertaken in developing countries in which great difficulty arises when trying to secure financial resources for a new project (Henrique and Sabal, 2006: 5). Project finance uses a well engineered finance mix in order to

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