Comprehensive course analysis
Who should attend
Project Finance and PPPs is recommended for finance professionals, consultants, developers, project managers, engineers, lawyers and portfolio managers from both the private and public sectors.
About the course
The Project Finance and PPPs program focuses on structuring, financing and valuing large capital projects and emphasizes Public Private Partnerships (PPP). Funding large capital expenditure projects delivers high returns but is inherently risky. In the aftermath of the great financial crisis, project failures have generated billions of dollars of losses for the equity sponsors and the creditors. The program provides a framework and methodology to look at project financing as a viable financing option from both the debt and equity perspective. Using case studies, that cover both social and economic infrastructure projects, the program illustrates how and why major infrastructure projects succeed or fail. The cases will show that improper structuring rather than the intrinsic value of projects has been the cause of many recent failures.
How you will benefit
- Understand when to use project finance and how it differs from other corporate finance techniques
- Identify the key financing sources: bank loans, multilateral funding and bond issue
- Structure the financing with a wide variety of financial and industrial participants
- Understand BOTs and Public Private Partnerships (PPPs)
- Conduct the due diligence of a project from a bank’s point of view
- Identify and manage the key risks, specifically the political, construction, market, FX and environmental risks
- Understand the cash flow model and sensitivity analysis
- Recognize the limits of IRR and how it can be manipulated
- Learn how to properly value projects
- Familiarize yourself with new initiatives for infrastructure finance
Overview of Project Finance
- The project finance framework
- Key characteristics and key parties involved
- Risks and risk mitigants
- Political, sovereign and expropriation risks
- Economic risks
- Project finance as a financial contract and contract types (BOT, BOO, etc.)
- Public Private Partnerships (PPPs)
Case Study: PPP and Social Infrastructure
The case study deals with the risks and the risk mitigants of a social infrastructure project (desalination plant). The goal is to identify the most significant risks in social infrastructure.
Financing Issues in Project Finance: the Macro View
- Financing types: bonds versus loans
- Assessing project finance debt
- Financial ratios: DSCR, LLCR, PLCR, etc.
- Financing risks and re-financing risks
- Lenders protection: cash sweeps, mandatory cash sweeps, etc.
- Role of Multi-Lateral Agencies (MLA) and Political Risk Insurance (PRI)
- Common derivatives used in project finance: swaps, etc.
*Case Study: PPP and Economic Infrastructure *
The case study illustrates the impact of financing decisions on a project’s outcome (in this case bankruptcy). It shows how critical the structuring of a project is for its survival.
Financing Issues in Project Finance: the Micro View
- Financing issues during construction
- Financing issues during operation
- Interplay between construction and operation
The goal is to illustrate how banks calculate debt commitments and optimize the capital structure, allowing participants to better understand what are known as a circular references and how to solve them.
Project Valuation: Cash Flows and Discount Rates
- The relevant cash-flows and the cash-flow waterfall
- Discount rates
- Cost of unlevered equity and levered equity
- Cost of debt
- The Weighted Average Cost of Capital (WACC)
- Cash flows
- Free Cash Flows (FCF)
- Cash Available for the Debt Service (CADS)
- Net Present Value (NPV)
- Reasons why the WACC cannot be used in project finance
- WACC alternatives
- Adjusted Present Value (APV) techniques
- Compressed Adjusted Present Values (CAPV) techniques
- Flow-to-equity (FTE) techniques
The goal is to let the participants experience cash-flow calculations and discount rates as they apply in the real world.
Project Valuation - the IRR
- The unlevered (project) IRR versus the levered (equity) IRR
- Usefulness of the IRR
- How to look good with the IRR
- IRR manipulation
The goal is to let the participants better understand key differences in IRR calculations and how they can be manipulated.
Capstone: Combining Valuation and Financing Issues
- Critical overview of methods, risks, and other considerations in project finance
*Case Study: PPP and Economic Infrastructure *
The case study involves an economic infrastructure project and covers both financing and valuation issues. The case is unique as it involves the IPO of a project and deals both with corporate and project finance issues.
Pierre Hillion is a Professor of Finance, de Picciotto Chaired Professor of Alternative Investments, and the Program Director of the INSEAD-Macquarie Master of Finance. From 1999 to 2004, he held the Shell Professorship in Finance. He serves as a visiting professor at the University of California...
Videos and materials
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