Historically, infrastructure projects have been public works funded by public funds, usually either tax revenues or proceeds from government bonds. They generally have been too costly for private sector participation because of the large initial capital outlay, the slow rate of return, and the risk that the project may never be profitable. Many developing country governments regarded the services that infrastructure projects provide such as sewer systems, telecommunications services, and public electricity as public goods and, therefore, services that should be provided with the mandate of the welfare state.
However, in the last twenty years, infrastructure development has been funded increasingly by private sources of capital. This private funding increasingly comes from outside the developing nation in the form of foreign direct investment. The increase to foreign direct investment was spurred by the inability of governments to pay for large-scale infrastructure projects because of growing fiscal deficits, increasing financial instability, and consequently disintegrating rates of economic growth.
Project financing is the most important legal and financial means by which this shift to private development in infrastructure growth has taken place. It involves a method of private financing where the repayment of the funds borrowed for an infrastructure project is dependent upon the revenue generated by the project itself. Project finance has been used to fund projects in a wide range of industries, including oil and gas, electricity, telecommunications, transportation (e.g., toll roads), and natural resources (e.g., copper mines and gold mines).
The sponsors of the project are usually large investors, both domestic and foreign, who take an equity stake in the project. The lenders for a project are primarily large international commercial banks, such as Deutsche Bank and JP Chase Securities, or multilateral lending agencies, such as the International Finance Corporation (IFC) and the European Bank for Reconstruction and Development (EBRD).
The first step in setting up a project financing usually involves the sponsors forming a project company, which is designed to construct, own, and operate the project facility. This project company is a corporation that is owned and managed by the sponsors and is designed to borrow funds for the project from the lenders. Since the project company, and not the sponsor itself, is the entity that is borrowing funds for the project, the project does not affect the balance sheet or creditworthiness of the sponsor directly. The lenders loan money to the Project Company with the assets and cash flow of the project acting as the security interest for the project loans. The lenders, furthermore, loan this money with the expectation of a constant cash flow from the project and a continuous operation of the project. To realize these goals, the lenders use contractual agreements with the sponsors of the project to guard against potential threats. The sponsors, in turn, seek guarantees from the host government that it will provide the necessary assurances to keep the project running smoothly.
Furthermore, financing a project through project financing can be a vehicle for social and economic development for developing countries because it is a relatively economically efficient way to finance public works projects that affect the lives of millions of people in the country. It is also an important channel for developed and developing countries to become more economically integrated because some of the projects funded through project finance involve the exploration of commodities that are primarily exported to developed countries.
However, project finance also presents significant risks to sponsors and lenders. Risk factors in a project financing come in a variety of strains, including currency-related risks, risks of government default on payment guarantees, and risks of civil unrest in the country. Arguably, the most important risks may be those associated with the political and legal instability of the host nation. Project Financing:
Can-Am offers project finance customized to the borrower's domestic environment and evaluates three key levels of criteria: investment value, organizational structure and financial requirements. First, Can-Am makes an independent investment evaluation involving the profitability of the industrial asset or project. Can-Am then works with borrowers to evaluate the organizational structure of the project to create an independent entity to own and manage the project. Finally, Can-Am works with borrowers to structure debt financing that is consistent with the project's repayment capacities and operating cash flows.
Can-Am focuses on the following types of industrial projects: infrastructure, power generation, oil refineries, natural gas and telecommunications. Can-Am also provides borrower’s assistance in sourcing U.S. manufactured equipment, such as aircraft, agricultural machinery, off-shore vessels, energy related equipment, mining related equipment. Non-industrial start-up ventures are also considered and are evaluated based on merit.
Short term and medium term financing is structured for projects with repayment terms of 180 days to ten years. Renewals, extensions and prepayment are available options. Adjustable and fixed interest rates are available for cash flow sensitive periods and loan terms are tailored to the project's repayment abilities.
Equity Investment:
"The final piece to most project financing"
Can-Am will consider arranging through third party equity investments for projects that either the company is financing or stand alone facilities through separate engagement arrangements. Equity investments can be in the format of syndication's or single investor facilities providing the borrower options as to the level of participation and return on profits.
Can-Am , LLC also has the ability to arrange private placement investment finance. This is a specialized field and is usually the choice for financing large infrastructure projects for companies that has an asset base of US$ 100 Million or more.
In order to achieve the financing the Client must pass a strict compliance that shall be submitted to the Can-Am’s Attorney in Hong Kong for processing. Once compliance is done and approved by the institution or foundations that the company works with, the funding is structured to the needs of the Client and is concluded.
These investors are secured by Can-Am in their capacities to participate in the project risks on medium and long term basis, with agreed project IRR with the project sponsors, along with adding credit enhancement to the overall debt facilities. The company has been successful in raising equity investor(s) for power generation facilities, oil and gas processing and telecommunications and continues to expand this service to other commercial and industrial projects developing in emerging markets.
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