When a certain project requires large amount of capital, the agency responsible for planning can apply for loans with financial institutions for project implementation. The loan provider usually takes the foreseeable cashflow of the project in question as the source for future loan repayment and major protection factor, as well as taking all assets and rights under the project as collateral.
The basic client assessment conducted by project financing is more or less identical to those conducted for regular financing cases, basing the evaluation on the rudimentary 5P:
The moral characters and credibility of the person in charge or the agency; the company’s reputation; its standings before society; financial health; management performance; shareholding ratio of major shareholders; as well as pledge of stock rights and bank transaction records – all these factors will be reviewed to ensure that project personnel meet the requirements of initial People test conducted by the bank upon receiving loans application. No further consideration will be possible if the project cannot pass the first stage of examinations.
Are the propose usage for funds reasonable? Do they adhere to standard market practices? If there are concerns over legality or fiscal solvency (such as investment through multiple levels of domestic and foreign holding companies), the opinions of the legal department or outside lawyers will be solicited.
Determine whether there is a stable source for repayment. When assessing the financial module, special attention will be given to whether the figures from actual wind power tests and estimates show excessive deviations, or whether the figures acquired through wind power tests used for cash inflow forecast appear reasonable.
Are the collateral acceptable? Are the values of the collateral inflated? What is the rough estimate of liquidation value? Do the agencies handling the appraisal credible? Is the amount of guarantee money sufficient?
Determining whether the remuneration collected by the bank fully reflects the risk through general assessment of factors such as bank strategy, regulation, tax, risk, company management, credit focus, bank profit, ROA, and ROE.
This article is also published in INSIDE（標題 ：【硬塞科技字典】什麼是專案融資（Project Loan）？）