Project Finance

FINANCIAL COLLATERAL, with an extensive track record of providing authoritative as well as innovative advice on a wide range of project financing transactions worldwide, its global experience and local knowledge enable it to deliver the integrated strategies and services its clients require for project financing. Project Financing can be viewed as the epicenter of all aspects of project development. In order to survive the close scrutiny that lenders and investors require to approve financing, all aspects of the project must be aligned, such that the end result will be, in all likelihood, a fully functioning, revenue-generating, and legally permitted project returning sufficient value to the investors.

Transacting a project finance deal is not merely a negotiation of financial structuring but rather necessarily involves an analysis of real property rights, construction and development contracts, equipment warranties, concession agreements, power purchase, and interconnection agreements, cash management, environmental permitting, regulatory matters, and, of course, tax analysis. FINANCIAL COLLATERAL  provides project owners/sponsors/promoters with a much-needed project financing gateway to investors and financiers. We have been at the forefront of several project financing transactions across various sectors of the economy around the globe. Our project financing services are particularly beneficial to shovel-ready or green shoot projects. We have the means as well as the necessary expertise to approach numerous Banks, Investment Bankers, Non-Banking Finance Companies (NBFCs), Financial Institutions (FIs), Venture Capitalists (VCs), Private Equity Investors (PE), Ultra High Net Worth Individuals (UHNWIs), Family Businesses, Hedge Funds, Pension Funds, Underwriters, Insurance Providers, etc. with great speed and efficiency.

We understand how these fund providers and investors work and what are their main areas of interest. Targeting the right source is not just important but also crucial for achieving a successful financial close.   

FINANCIAL COLLATERAL offers:

1. Identification of projects with a Cash Flows Generating component and bankability potential;

2. Support project development to achieve bankability;

3. Preparation and structure of transactions by leveraging our consulting, financial and legal expertise; 

4. Finding the right investor and achieving financial close;

5. Support the client through the project execution and construction phases. 

We can be present with our services across the entire project lifecycle:

Strategy and planning: Assisting long-term planning of individual projects or a portfolio by focusing on feasibility, alignment with corporate objectives, and governance procedures in order to maximize return on investment.
Financing and procurement: Raising project finance; establishing and managing the procurement process to acquire services, materials, or equipment to deliver the project, and prioritizing capital allocation between projects.
Project organization, execution, and construction: Setting up the project for success and strengthening client capabilities to deliver on time and to budget.
Operations and maintenance: Assessing ongoing lifecycle costs and providing insights around optimizing the performance and value of assets in operation.
Asset recycling, concession maturity & decommissioning: Determining when and how to discontinue investing in an asset, and transaction advisory services for investors in infrastructure assets.

The key reasons for the underdevelopment of project financing lie in insufficient project maturity and the inability to develop projects to the level necessary to achieve bankability. Access to finance is one of the main reasons that projects are not developing faster and the key stakeholders sometimes do not see a business case for financing. Moreover, the lack of know-how and competence of key stakeholders requires a complex multidisciplinary approach in order to guarantee project execution.
Projects, however, are funded solely on their merits. Although we do not make claims of a 100% success rate in our pursuit of project finance, with our expertise and experience, our clients enjoy a definite advantage in terms of getting their projects successfully funded. Non-Recourse or Limited Recourse project finance is much more challenging to arrange when the only source of repayment will be the revenue stream, cash flows, cost savings, or equity position generated by the project itself and there is limited recourse—or none at all—to the project’s sponsors. While we’re confident of the contribution we can make toward a project’s success, we will get involved with arranging non-recourse project finance only on a mandated basis and with payment of our Engagement Fee.  

The following are extremely important for achieving successful financial closure.

DETAILED FEASIBILITY STUDY (DFS)
Any project, whether infrastructure, power, real estate, communications, retail, logistics and supply chain, healthcare, hospitality, tourism, education, transport, energy, research & development, or information technology, needs a detailed feasibility study prior to starting. Without the Feasibility Study Report (FSR), a project would be extremely ill-conceived and would never reach its true potential. Conducting a detailed feasibility study (DFS) is one of the key activities within the project initiation phase. It aims to analyze and justify the project in terms of technical feasibility, business viability, and cost-effectiveness. The study serves as a way to prove the project’s reasonability and justify the need for launch. Once the study is done, a feasibility study report (FSR) should be developed to summarize the activity and state if the particular project is realistic and practical. The DFS aims to identify, explore, and evaluate a project’s solutions to save time and money.
The Feasibility Study Report (FSR) is a formally documented output of a detailed feasibility study (DFS) that summarizes the results of the analysis and evaluations conducted to review the proposed solution and investigate project alternatives for the purpose of identifying if the project is really feasible, cost-effective, and profitable. It describes and supports the most feasible solution applicable to the project.
The report gives a brief description of the project and some background information. Formally this document is the starting point for running the Pre-Charter Sub-Phase. In practice, it signifies that the sponsor can proceed with deciding on project investment and make necessary assignments to the project manager. It provides legal and technical evidence of the project’s vitality, sustainability, and cost-effectiveness. The reporting process allows the senior management to get the necessary information required for making key decisions on budgeting and investment planning.

DETAILED PROJECT REPORT (DPR)
As the identification and intention for the implementation of the project grow, the depth of the study for the probable project increases. Further analyses of the details relevant to such a project become imperative. The feasibility study report (FSR) contains sufficient detailed information. It is from the study of the pre-feasibility or feasibility study report that approval is made by the project owner/sponsor/investor for the investment in the project or for a request to prepare the DPR.
Preparation of DPR is a costly and challenging process that may extend to a long period of strenuous work by experts and requires reports of specialists from different streams such as market research, engineering (civil, mechanical, metallurgical, electrical, electronics), finance, etc. carefully considered prior the final drafting of the DPR which must minimize technical uncertainties going forward. A good DPR must be based on attested Technology and Design to minimize the risk of failure. Our expert project support team relies on our extensive data and global connections to formulate the most cost-effective DPR with attested technology and design. Project location benefits, availability of easily accessible resources, project capacity, etc. are extremely important aspects of any detailed project report and we take full care to make sure these have been assessed accurately while preparing the DPR. Similarly, government policies (both at the state as well as central levels), the public attitude towards projects, rehabilitation concerns, etc., must be squarely dealt with since most projects are planned over a long-term horizon. The below are included in a DPR we prepare:

1. Project Summary
2. Market Report
3. Technical details with the process involved and the plant layout,
4. Plant and Machinery and other equipment as required for the project,
5. Project Schedule
6. Organization/ Management Structure
7. Financial details of project costs, source of financing
8. Cost of Production,
9. Projected Profit and Loss Account,
10. Projected Balance Sheet,
11. Projected Cash Flow Statement,
12. Interest and Commitment Charges,
13. Working Capital Requirements
14. ​Debt Service Coverage

FORECASTING WITH SCENARIOS

Forecasting is the process of predicting future developments in business based on analysis of trends in past and present data. It refers to the tools and techniques used to predict developments in business, such as sales, expenditures, and profits. The purpose of business forecasting is to develop better strategies based on these informed predictions. Past data is collected and analyzed via quantitative or qualitative models so that patterns can be identified and can direct demand planning, financial operations, future production, and marketing operations.
The forecasting process entails:

1. Identify the problem, data point, or question that will be the basis of the systematic investigation.
2. Identify relevant, theoretical variables and determine the ideal manner for collecting datasets.
3. Make estimates about future business operations based on information collected through investigation.
4. Choose the model that best fits the dataset, variables, and estimates. The chosen model conducts data analysis and a forecast is made.
5. Note the deviations between actual performance and the forecast. Use this information to refine the process of predicting and improve the accuracy of future forecasts.

Quantitative Techniques in Forecasting
Quantitative forecasting is a long-term business forecasting method concerned only with measurable data such as statistics and historical data. Past performance is used to identify trends or rates of change. These types of business forecasting are especially useful for long-range forecasting in business. Quantitative models include: 

1. Trend Analysis Method: Also known as “Time Series Analysis,” this forecast method uses past data to predict future events, excluding outliers and holding more recent data in higher regard. This method is most effective when there is a large quantity of historical data showing clear and stable trends. This is the most common and cost-effective method.
2. Econometric Modeling: This mathematical model makes use of several multiple-regres­sion equations to test the consistency of datasets over time and the significance of the relationship between datasets, and to predict significant economic shifts and the potential effect of those shifts on the company. ‍
3. Indicator Approach: This approach follows the relationship between certain indicators and uses the leading indicator data in order to estimate the performance of the lagging indicators. Lagging indicators are a type of KPI that measures business performance subsequently and provide insight into the impact of business strategies on the results achieved.

Qualitative Techniques in Forecasting
Qualitative forecasting relies on industry experts or “market mavens” to make short-term predictions. These techniques are especially useful in forecasting markets for which there is insufficient historical data to make statistically relevant conclusions. Qualitative models include:

1. Market Research: Polls and surveys are conducted with a large number of prospective consumers regarding a specific product or service in order to predict the margin by which consumption will either decrease or increase. ‍
2. Delphi Model: A panel of experts is polled on their opinions regarding specific topics. Their predictions are compiled anonymously and a forecast is made.

Scenarios in a Business Plan explore multiple futures and multiple perspectives. A good business plan needs to provide multiple scenarios, or scenario planning, as it is best known. Scenarios are alternate futures in which today’s decisions may play out. They are stories with beginnings, middles, and ends. Good scenarios have twists and turn that show how the environment might change over time. A good set of scenarios will contain two to five different narratives. More than five scenarios tend to get confused with one another. Three scenarios run the danger that people will try to pick the most moderate or most apparently plausible and forget about the other two. Four is a good number — neither too many nor too few. Each scenario should contain enough detail to assess the likelihood of success or failure of different strategic options. Will there be sufficient demand for a new product? Are supply chains likely to remain intact? How much competition can we anticipate? Have new technologies rendered a product obsolete? Will political instability put those oil fields beyond our reach? Sometimes the point of a scenario is to pry attention away from the ordinary. The very process of thinking about a range of possible futures can be a useful opportunity for addressing issues that might otherwise be neglected.

EPC CONTRACTS AND OFF-TAKER AGREEMENTS

It is important to have the contracts in place for the contractors ready to take on the project construction phase. These can be an assortment of contracts for Engineering, Procurement, and Construction necessary for the project to be production ready or operational. We help formulate contract strategy and then draft the contracts on behalf of our clients keeping in view costs, quality, and legal aspects.
We also assist our clients to enter off-taker agreements such as concessions, power purchase agreements, supply contracts, etc. These off-taker agreements are the backbone of any planned project and are instrumental in securing investor funds for any project.

FINANCIAL MODEL
A vibrant, bankable financial model is the heart of every project. The task of building an abstract representation (a mathematical model designed to represent the performance of any project) of a real-world financial situation is a job cut out for specialists and experts. Applications of a financial model include:

1. Business valuation especially discounted cash flow, but including other valuation approaches
2. Scenario planning and management decision making
3. Capital budgeting, including the cost of capital (i.e. weighted average cost of capital or WACC) calculations
4. Financial statement analysis/ratio analysis (including operating- and finance leases, and R&D)
5. Project finance modeling
6. Cash flow forecasting and ALM-related
7. Credit decision: Credit analysis and Consumer credit risk;  impairment- and provision-modeling
8. Working capital- and treasury management
9. Management accounting: Activity-based costing, Profitability analysis, Cost analysis

The project’s finance team can’t be agile with a manual, error-prone, and fragmented financial planning and analysis (FP&A) process. To ensure real-time reaction and financial decision-making, we provide the ability to synthesize information from all data sources, uncover trends and deliver insights faster than ever. We help accelerate your FP&A by automating data collection, aggregation, and validation. We help align operational tactics with financial plans to understand what’s truly going to drive a project and to steer project performance. Our expert project support services team, with its access to cutting-edge technology, provides a dynamic solution to devise financial models that take care of every financial aspect of any project. This is a highly technical and analytical work involving financial analysts, economists, accountants, engineers, and legal & taxation experts.​

BUSINESS PLAN & PITCH DECK

We have been consistently endeavoring to simplify the process of raising Project Finance​ for project promoters and owners across the world. While discussing Project Finance, the significance of submitting a concise yet profoundly informative Project Proposal or Business Plan cannot be overestimated. Fund Providers as well as investors want to see a business plan that is short enough to engage investor interest and yet long enough to cover all vital project information.
We realize that it is not easy to put a winning Business Plan in place unless the Business Plan writer has been thoroughly acquainted with the project right from its inception. There are numerous consultants who would accept any Business Plan compiled by anyone. However, we generally do not. Project Finance is a challenging task and our experts would like to do it in a highly evolved manner so that chances of successful financial closure are extremely high. We accept Business Plans compiled by either a competent project management team or a professional financial services provider with a history of handling financial modeling for projects. Financial modeling combines accounting, finance, and business metrics to create an abstract representation of a company in Excel and has a wide range of uses, including making business decisions at a company, making investments in a private or public company, pricing securities, or undergoing a corporate transaction such as a merger, acquisition, divestiture, or capital raise.
We also need a Pitch Deck, a brief presentation, often created using PowerPoint, and used to provide investors/funders with a quick overview of your business plan with visual enhancements such as graphs, charts, and pictures. You will usually use your pitch deck during face-to-face or online meetings with potential investors, customers, partners, and co-founders.

PROJECT STRUCTURING
The structuring of project financing is a framework in which ownership structure, project structure, risk structure, and financial structure decisions are made and tied together in the project’s legal structure which, in turn, forms a foundation for funding the project on a limited recourse basis. The ownership structure is how the special purpose company/vehicle (SPC/SPV) is organized; that is, as a corporation, unincorporated joint venture, limited liability partnership, etc. Project structure on the other hand refers to the agreements defining responsibilities and transfer of rights and/or ownership of the SPC/SPV such as build, operate, and transfer of ownership (BOT), build, own, operate, and transfer (BOOT), build, lease, and transfer (BLT), etc.
Risk structure is the prioritization and mitigation of risks after the identification, assessment, and allocation process is completed. The project’s legal structure is the web of contracts and agreements negotiated to make financing possible. Financial structure refers to the mix of financing used to fund a project, which includes equity, short‐ and long‐term loans, bonds, trade credits, etc., and the cash flows to equity providers and lenders.
A special purpose vehicle (SPV) project company with no previous business or record is necessary for project financing. The company’s sole activity is carrying out the project by subcontracting most aspects through construction contracts and operations contracts. Because there is no revenue stream during the construction phase of new-build projects, debt service is possible during the operations phase only. For this reason, parties take significant risks during the construction phase. The sole revenue stream is most likely under an off-take or power purchase agreement. Because there is limited or no recourse to the project’s sponsors, company shareholders are typically liable up to the extent of their shareholdings. The project remains off-balance-sheet for the sponsors and for the government.

PROJECT RISK IDENTIFICATION, ANALYSIS, MITIGATION, AND ALLOCATION

The golden rule of project finance is one of risk mitigation: the deal structure must allocate risks that could affect the project’s cash flow or assets to a creditworthy party with the ability to mitigate that risk. Much of the tension in negotiating a project financing will derive from each participant’s efforts to shift various risks to others while retaining the particular benefits that the participant seeks from the transaction. We assist our clients with arriving at a comprehensive risk management strategy. The core of Project Finance is the analysis of project risks, namely construction risk, operating risk, market risk, regulatory risk, insurance risk, and currency risk. There are risks related to the pre-completion phase such as activity planning risk, technological risk, and construction risk or completion risk. Then there are risks related to the post-completion phase such as supply risk, operating risk, and demand risk.  And then there are risks related to both phases such as interest rate risk, exchange risk, inflation risk, environmental risk, regulatory risk, political risk, country risk, legal risk, and credit risk or counterparty risk. These risks are allocated contractually to the parties best able to manage them. The process of risk management is usually based on the following interrelated steps:

1. risk identification;
2. risk analysis;
3. risk transfer and allocation;
4. residual risk management;

Essential to structuring a project finance package are the crucial elements of successful identification, analysis, mitigation and allocation of project risks. These risks are related to events that could endanger the project during development, construction and operation.
During the development stage the main risk is rejection by the host government or by the financiers – for reasons including commercial weakness, failure to obtain licenses, permissions and clearance. Sponsors can hedge their risks by obtaining technical assistance grants for project preparation and planning.
During the construction stage the main risk is failure to complete the project with acceptable performance levels and within an acceptable time frame and budget. Sponsors can hedge construction risks by purchasing various forms of insurance and obtaining guarantees from contractors with regard to costs, completion schedule and operational performance.
After construction, the main risk is ongoing operations and performance and include technical failures, availability of funds, market demand, prices, foreign exchange rates or environmental issues. The sponsors can hedge these risks through contractual and guarantee agreements that transfer some of the risk to other parties.

BENEFITS OF PROJECT FINANCE

Financing projects through the project finance route offers various benefits such as the opportunity for risk sharing, extending the debt capacity, the release of free cash flows, and maintaining a competitive advantage in a competitive market. Project finance is a useful tool for companies that wish to avoid the issuance of a corporate repayment guarantee, thus preferring to finance the project in an off-balance sheet manner. The project finance route permits the sponsor to extend their debt capacity by enabling the sponsor to finance the project on someone’s credit, which could be the purchaser of the project’s outputs. Sponsors can raise funding for the project based simply on the contractual commitments.
Project finance also permits the sponsors to share the project risks with other stakeholders. The basic structure of project finance demands that the sponsors spread the risks through a network of security arrangements, contractual agreements, and other supplemental credit support to other financially capable parties willing to assume the risks. This helps in reducing the risk exposure of the project company.
The project finance route empowers the providers of funds to decide how to manage the free cash flow that is left over after paying the operational and maintenance expenses and other statutory payments. In traditional corporate forms of organization, corporate management decides on how to use the free cash flow — whether to invest in new projects or to pay dividends to the shareholders. Similarly, as the capital is returned to the funding agencies, particularly investors, they can decide for themselves how to reinvest it. As the project company has a finite life and its business is confined to the project only, there are no conflicts of interest between investors and the management of the company, as often happens in the case of traditional corporate forms of organization.
Financing projects through the project finance route may enable the sponsors to maintain the confidentiality of valuable information about the project and maintain a competitive advantage. This is a benefit of raising equity finance for the project (however, this advantage is quite limited when seeking capital market financing (project bonds). Where equity funds are to be raised (or sold at a later time so as to recycle capital) through market routes (for example, Initial Public Offerings [IPOs]), the project-related information needs to be shared with the capital market, which may include competitors of the project company/sponsors. In the project finance route, the sponsors can share the information with a small group of investors and negotiate the price without revealing proprietary information to the general public. And, since the investors will have a financial stake in the project, it is also in their interest to maintain confidentiality.
In spite of these advantages, project finance is quite complex and costly to assemble. The cost of capital arranged through this route is high in comparison with capital arranged through conventional routes. The complexity of project finance deals is due to the need to structure a set of contracts that must be negotiated by all of the parties to the project. This also leads to higher transaction costs on account of the legal expenses involved in designing the project structure, dealing with project-related tax and legal issues, and the preparation of necessary project ownership, loan documentation, and other contracts.

DYNAMIC OF PROJECT FINANCING

From a broad perspective and general analysis, the financial viability (or commercial feasibility) of the project is assessed by determining whether the net present value (NPV) is positive. NPV will be positive if the expected present value of the free cash flow is greater than the expected present value of the construction costs. However, in addition to or in lieu of the NPV, lenders will use debt ratios such as the Debt Service Cover Ratio (DSCR) and Life Loan Cover Ratio (LLCR) as the main ratios to measure bankability.
The DSCR measures the protection of each year’s debt service by comparing the free cash flow (more precisely, the cash flow available for debt service – CFADS) to the debt service requirement. The DSCR requires that the cash flow available for debt service is at least a specified ratio (for example, 1.2 times) of the scheduled debt service for the relevant year. The LLCR compares the overall amount of free cash flow projected for the life of the loan, duly discounted with the amount of debt under analysis. The LLCR also reflects the capacity of the SPV to meet the debt obligations over the life of the loan (considering potential re-structuring).
On the basis of the projected cash flows of the SPV, including the debt profile under analysis, lenders and their due diligence advisors will observe the value of such ratios, and accommodate the debt amount so as to meet them, considering the maximum term at which they are ready to lend. Subsequently, they will run sensitivities analysis (including break-even analysis) on the project cash flows to test the resistance of the project to adverse conditions or adverse movements of the free cash flow figures from the base case.
In determining financial viability, and related to the reliability of cash flows and the guarantees offered by the contract (especially termination provisions), the lenders will analyze the risk structure of the contract. This will include determining how achievable the performance standards in “government-pays” projects, or the contractual guarantees in “user-pays” projects, actually are. Lenders will exercise tight control of all cash flows, limiting the ability of the private partner(s) to dispose of them — through “covenants” (for example, no distributions may be made if the actual DSCR of the previous year has not meet a certain threshold). The bank accounts through which cash flows pass will be pledged and held with a bank within the syndicate; this is in addition to other provisions to be adapted in the loan agreement.

HOW DOES PROJECTS FINANCING SOLUTIONS BT FINANCIAL COLLATERAL HELPS

Project Finance is one of the key focus areas for FINANCIAL COLLATERAL. We have access to several project financing groups and institutions that have institutionalized capabilities to successfully manage the unique and multidimensional process of project finance transactions led by customized project structuring approach.
These groups and institutions have been the lead arrangers and underwriters of a significant amount of project debt over the years. In the Indian project finance domain, they enjoy a leadership position and are acknowledged for their comprehensive domain expertise and knowledge in the infrastructure, manufacturing and mining sectors, having ensured timely financial closure of several big ticket projects.
Whether you’re investing in renewable energy, telecommunications or water supply and waste water treatment – we develop the right solution for sustainably viable, flexibly structured financing to meet the needs of your transaction.
Backed by in-depth expertise you can benefit from our wide network in emerging and developing countries, our comprehensive knowledge of sectors and industries, and our 21 locations across North America, Europe, Asia, Africa, Oceania and Latin America. 

HOW DOES ONE APPLY FOR PROJECT FINANCE?

Once you have contacted us and shared your requirement for raising project finance, we will send you our JOINT VENTURE AND PROJECT FINANCE FACILITATING SERVICES TERMS AND CONDITIONS to review carefully. If and when you agree to our TERMS & CONDITIONS, you will receive the Client Agreement draft which you will have to fill, sign and return to us. Subsequently, you will need to submit relevant information pertaining to your project through our online  Project Finance Application Form. 

Our services, however, do not come for free and hence be prepared to pay our service charges when you use our services. Also, we are rather choosy about who we serve. We encourage only serious clients who understand what it takes to arrange finances for projects. Our seamless services start with our client sending us a formal Letter of Intent expressing his/her desire to hire our services and then following this up by entering into a formal service agreement with us and depositing the token Engagement Fee online prior submitting the Project Finance Application Form  which is non refundable. That is not all. You would be further liable to pay a Success Fee (case specific) post successful closure of funding.

WHAT HAPPENS NEXT?

Our analysts evaluate projects individually, so if you have more than one project, you should complete one copy of the form for each project for which you are seeking funding. Once your Project Finance Application Form ​is received by us, our analysts will review the submitted Business Plan in detail and quickly evaluate whether it is good enough to move to the next stage.

If our analysts determine that your project is unlikely to meet our criteria, we will quickly contact you, usually within a day or two, to inform you the areas of the Business Plan that needs further working.

However, if our analysts determine that your project Business Plan is bankable, we will immediately get in touch with you for further discussions to finalize the project financing strategy. 

The Applicant may be asked to submit  the following (but not limited to) documents relating to the project that is seeking project finance:

1. Business Plan/ Pitch Deck
2. Project Financial Structure + Legal Structure + Management Structure
3. Revenue Model
4. Cash Flow Projections for the next five to ten years
5. SWOT Analysis of the project
6. Risk Analysis & Mitigation details
7. SPV/SPC(Special Purpose Company/Vehicle) Registration documents
8. Federal and Local Government Departmental Clearances and Approval records
9. Environmental Clearances
10. Market Research Report
11. Feasibility/ Techno-Economic Evaluation Report (DFS/FSR)
12. Detailed Project Report (DPR)
13. Off Taker Agreements/ Contracts /PPAs
14. Procurement Agreements / Contracts supported by Equipment specs and Proforma Invoices
15. EPC Agreements / Contracts (with companies that will construct the project infrastructure)
16. Operations & Maintenance (O&M) Agreements / Contracts
17. Debt Exposure Details
18. Patents or Copyright certificates (If any)
19. Project Land Status and records including ownership/lease records
20. Legal Report (Establishing non-criminality)

Upon receipt of all the documents and information submitted by the applicant, a Funder would evaluate the project in greater detail. Generally an Appraisal meeting is convened where all the decision makers at the Funding Company officially review the project as presented to determine if the project is within their scope of funding. Subsequent to this meeting, a due diligence of the project is generally undertaken by the Project Funder(s)/ Investor(s) and the the Project Sponsors/Applicant pay(s) for the expenses involved in carrying out the due diligence. Such expenses are project specific . 

IMPORTANT TO NOTE:
1. We quickly respond to all inquiries. 

2. We do not delegate executive time to an inquiry until your project, as expressed in your fully completed Project Finance Application form, has been thoroughly evaluated by our analysts.

3. To ensure our executives do not waste time on unrealistic inquiries we do not enter discussions in any form until we have a full understanding of your project’s potential and risks. We therefore do not offer meetings, hold telephone discussions or return telephone calls until we have thoroughly evaluated your project.

4. Please do not send us additional communications during the application phase as it delays the application process.

5. We do not finance projects valued at less than $5,000,000.00 (United States Dollars five million), we do not finance acquisitions and we do not finance projects in countries mentioned in this Restricted Nations list

6. All our official communications are in English. We do not offer a translation service.

FINANCIAL DUE DILIGENCE

Financial due diligence requires that, during loan preparation and processing, sufficient analysis is undertaken to enable an informed assessment to be made with respect to project financial viability and long-term sustainability, and that the borrowers’ financial and project management systems are, or will be, sufficiently robust to ensure that funds are used for the purpose intended and that controls will be in place to support monitoring and supervision of the project.
There are Guidelines that provide the framework for financial due diligence, namely completion of a financial management assessment (FMA) of the executing agency (EA) and/or implementing agency (IA), financial evaluation of the project, and assessment of implementation arrangements (from a financial perspective, including disbursement and auditing arrangements).
The methodology note provides specific guidance in four primary aspects of financial due diligence:

1. financial management assessment,

2. project cost estimates and financing plan,

3. financial analysis, and

4. financial evaluation.

It also provides guidance on assessing disbursement auditing arrangements. This financial due diligence methodology note offers a suggested approach for operationalizing the standard project preparation and loan processing requirements of the Guidelines. the Guidelines, together with the methodology note, should be seen as a reference guide to assist staff in conducting an appropriate degree of financial due diligence during project  preparation and processing, and should guide staff in determining the appropriate level of financial management  safeguards required for a given project and/or EA and/or IA. The advice, directions, and recommendations provided should not be regarded as a substitute for the professional judgment of SUBCON staff.

FINANCIAL MANAGEMENT ASSESSMENT
Effective financial management within the EA and/or IA is a critical success factor for project sustainability, both in the effective use of funds and in the safeguard of assets once created. Irrespective of how well a particular project or program is designed and implemented, if the EA and/or IA does not have the capacity to effectively manage its financial resources, the benefits of the project are unlikely to be sustainable.
The objective of the financial management assessment (FMA) is to ensure that the EA and/or IA has, or will have, sufficiently strong and robust financial management systems and procedures in place to ensure sustainability of project investments and benefits over time.
The FMA is a review of the entity’s systems for financial and management accounting, reporting, auditing, and internal controls. It also involves an assessment of the entity’s disbursement and cash flow management arrangements, and governance and anticorruption measures. The FMA is not an audit; it is a review designed to determine whether or not the entity’s financial management arrangements are sufficient for the purposes of project implementation.

APPROACH & METHODOLOGY
The first step is to determine whether an FMA has recently been completed by any other credible financial institution (Bank, NBFC, VC or PE agencies) , the objective being to avoid duplicating diagnostic work that already exists. If an FMA exists, this should be reviewed and, in particular, any work done to overcome previously identified weaknesses should be checked. The original FMA can then be updated accordingly.
While planning to rely on the work of another lender , FINANCIAL COLLATERAL would thoroughly review the agency’s assessment report to determine whether or not the results of the FMA are reasonable and can be accepted by FINANCIAL COLLATERAL.
If an FMA has never been completed, or if there have been significant on-ground changes which render an existing FMA obsolete, then the following approach to the FMA is recommended:
Review the Economic Sector diagnostic studies specific to the country where the project is located, including the country financial accountability assessment, country procurement assessment report, country governance assessment, and diagnostic study on accounting and auditing.
Early in project preparation, have the borrower/project promoter complete a Financial Management Assessment Questionnaire (FMAQ).
Review responses to the FMAQ, determine what (if any) additional information is required in order to be able to conclude whether or not the financial management arrangements (a) are capable of recording all transactions and balances, (b) support the preparation of regular and reliable financial statements, (c) safeguard the entity’s assets, and (d) are subject to audit.
Review past audit reports and audit management letters to assess what concerns have previously been raised on systems and internal controls.
Form a conclusion with respect to whether or not the financial management arrangements and financial and project accounting systems can be relied upon for the purposes of the project.
If issues and/or weaknesses are identified, determine the most appropriate mitigation measures (e.g., restructuring finance sections, increasing finance staff, filling vacant posts, developing new systems, developing financial reporting, training, etc.).
Determine whether, given the findings, it is necessary to include a project component to strengthen financial management in the EA and/or IA and/or establish or strengthen a project implementation or project management office via either technical assistance or consultant support within the project.

OBJECTVE/NEUTRAL DUE DILIGENCE
1. Due Diligence service is rendered by an accredited Due Diligence service provider appointed by the Funding Partner Company. Due Diligence is by far the most important exercise in the funding consideration process.

2. The charges for the Due Diligence are to be borne by the applicant. These charges are specific for every case and the applicant is given prior notice of this.

3. It is extremely important that the applicant understands clearly the processes of Due Diligence is to secure a successful transaction and mutual business relationship between the applicant and the Funding Partner Company.

4. The Funding Partner Companies provide finance to viable projects on precise terms. There are no general terms. Everything is specific to the project under consideration.

Once the Due Diligence is successfully completed, a Funding Offer is officially made from Funding Partner Company to the applicant (Project Owner(s)/ Promoter(s)). The Project Owner(s)/Promoter(s) are issued an Invitation Letter for a table meeting in the Funding Partner Company’s office which can be in any country. Post a personal interview of the project owner(s)/promoter(s) ,the Loan Agreement/MOU is drafted and signed. Insurance requirements too would be discussed and finalized at this meeting.

Post successful completion of all of the above processes, funding disbursement would commence within the specified time frame.

Every Project Manager Must Understand These