What Is Involved in International Corporate Finance?

International project financing is a financing method in which lenders mainly rely on cash flow generated from project operations to recover loans. Not just focusing on the financing of project sponsors. It is mainly used for large-scale, capital-intensive development and construction projects, such as energy and transportation engineering projects. For exploration and development projects, a concession agreement issued by the host government must first be obtained. The differences between project financing and traditional financing methods are as follows: The traditional financing method is that the loan bank lends to the borrower, and the borrower invests the borrowed funds in the construction of a certain engineering project, and the borrower is responsible for repayment later. Therefore, the lender mainly makes loan decisions based on the borrower's credit standing and his ability to repay debts, not the success or failure of the project he runs. Project financing is different. The project sponsor or organizer specifically sets up a company for the financing and operation of the project, called the project entity. This company raises funds for the loan bank, and in the future it will use the operating income of the project to repay the loan. There are basically two types: project financing without recourse; project financing with recourse. The risks of project financing include the following: fund raising risk, completion risk, resource risk, operating risk, market risk, exchange rate risk, and political risk. In order to avoid risks, lenders can take measures such as providing a solvency factor, obtaining real property guarantees, and providing third-party guarantees. ^[1]

International project financing

International project financing is a financing method in which lenders mainly rely on cash flow generated from project operations to recover loans. Not just focusing on the financing of project sponsors. It is mainly used for large-scale, capital-intensive development and construction projects, such as energy and transportation engineering projects. For exploration and development projects, a concession agreement issued by the host government must first be obtained. The differences between project financing and traditional financing methods are as follows: The traditional financing method is that the loan bank lends to the borrower, and the borrower invests the borrowed funds in the construction of a certain engineering project, and the borrower is responsible for repayment later. Therefore, the lender mainly makes loan decisions based on the borrower's credit standing and his ability to repay debts, not the success or failure of the project he runs. Project financing is different. The project sponsor or organizer specifically sets up a company for the financing and operation of the project, called the project entity. This company raises funds for the loan bank, and in the future it will use the operating income of the project to repay the loan. There are basically two types: project financing without recourse; project financing with recourse. The risks of project financing include the following: fund raising risk, completion risk, resource risk, operating risk, market risk, exchange rate risk, and political risk. In order to avoid risks, lenders can take measures such as providing a solvency factor, obtaining real property guarantees, and providing third-party guarantees. ^[1]

Project-oriented and dependent on the project's cash flow and assets,

Not the assets and strength of the project investor itself.

Risk sharing.

(3) Recourse is restricted.

The project financing structure is complicated, the amount is large, the cycle is long, and the risk is high.

There are also many legal issues involved.

Funding for international project financing mainly comes from the following sources

(1) Commercial banks. Commercial banks are the main source of funding for international project financing.

(2) Non-bank financial institutions.

(3) International financial institutions.

(4) Export credit agencies of governments.

(5) Lenders of public institutions.

(6) Loans and advance payments from the project sponsor.

(7) Financial leasing companies.

1. BOT way

BOT is the abbreviation of English Build-Operate-Transfer, that is, construction-operation-transfer method. It is the government that grants a concession to an infrastructure project to a contractor (usually an international consortium). The contractor is responsible for project design, financing, construction, and operation during the concession period, and recovers costs, repays debts, and earns profits. Project ownership is then transferred to the government. In essence, the BOT financing method is a special operation mode in which the government and contractors cooperate to operate infrastructure projects. It is also called "concession financing method" in our country.

• 2. International finance lease

Financial leasing is also a financial lease. When the project unit needs to add technical equipment and lacks funds, the lessor purchases or leases the required equipment on behalf of the project unit, and then leases it to the project unit for use. The rent is recovered on schedule. The total amount is equal to the sum of the equipment price, loan interest and handling fee. When the lease term expires, the project unit, ie the lessee, acquires ownership of the equipment with a nominal payment. During the lease, the lessee has only the right of use, and the ownership belongs to the lessor.

The methods of financing lease are: equity lease, leaseback lease, sub-lease, direct lease, etc.