Resuming notes of the course

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Financing Complex Projects Easy Recap Notes 2022-2023 1 Financing Complex Projects 1.lntroduction • Why infrastructures are an attractive asset class for investors? o Long term and long economic life (>10 years) o Stable and predictable operating CF (no volatility, easy forecasting) o Low technological risk (at least in the majority, the market is mature) o Provision of public services (Street, railways&) o Rigid demand (if the price increase, the demand remains the same) o Typically is a monopoly or something very similar o High barriers to entry (due to monopoly and high capex) o High regulated market (the price is fair for all the parties) o Natural hedge against inflation (price adjustments) o Higher return compared to government bonds, due to a lower interest rate • Alternatives for financing infrastructures? o Corporate finance = project developed inside the existing company, that uses its assets/liabilities and equity as collaterals for the project. The structure and risk profile of the company consider also this investment. Usually a company has a portfolio of investments. o Project finance= here there is the creation of a SPV (legal and financial entity) that has the only purpose so deliver the project. It has its own assets and liabilities and it’s tailor made for the project, it has its rules and constraints. Through the SPV the sponsors won’t be touched in case of default etc. The CF generated will be used for operating cost and repay the debt, then if there is room they will be divided to shareholders/sponsors. CORPORATE PROJECT Guarantees Company’s assets Assets of the SPV Effect on financial elasticity Reduced for borrower Untouched Accounting ON BS of the company OFF Balance Sheet Variables to find fund sources Customer relation, solidity of BS,…