Accounting for Project Finance Training Course

During the three highly practical days delegates will:

• Gain a thorough understanding of the new IFR 10.11 and 12 and the implication for project financing
• Be able to effectively evaluate the various financing structures
• Learn how identify and mitigate the risks inherent in different types of project
• Develop the skills to be able to create various spreadsheet models
• Benefit from an analysis of the changing regulatory and accounting environment for project finance

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Project Finance Overview

• Definition of project finance
• Corporate vs project finance
• Projects suitable for project finance
• Trends in project finance

Case Study – Government project financing for a school and prison

Designing the Deal

• Setting out the feasibility study
• Planning – The involvement of the sponsoring companies and strategic partners
• Setting up the most appropriate structure
• Financing arrangements
• Risk assessment and risk mitigation

IFRS 10 – Identifying When to Consolidate

• Applying the single control model
• Assessment of control made on a continuous basis
• Control vs collective control
• Range of operating and financing activities
• Investor Decisions

Investees Controlled by Means of Voting Rights

• More complex cases
• When voting rights are not relevant
• Operating and finance activities.

Define Type of Joint Arrangement in Accordance with IFRS 11

• Structure of the arrangement under IAS 31
• Joint venture v joint operations
• Jointly controlled operations v jointly controlled assets
• Proportionate v equity method of consolidation

The Structure

• Partnerships
• Special purpose vehicle
• Joint venture
• Limited partnership

Case Study – BP current policy – oil and gas project financing

The Risks

• Business risk – Sale of output
• Market risk – Foreign exchange and interest rate risk
• Completion risk
• Maintenance risk
• Government risks

Case Study – Reducing financing costs in renewable energy

Risk Mitigation

• Use of treasury derivatives
• Take or pay contracts
• Legal binding agreements
• Credit enhancement
• Legal structure

Sources of Finance

• Equity
• Debt
• Rule 144a financing
• Convertible bonds
• Bank loans
• Bonds
• Syndicated lending

Case Study – Use of syndicated lending in project finance

Accounting for Project Financing

• On vs off balance sheet
• Beneficial interest
• IAS accounting framework
• FASB accounting framework

Regulatory Environment

• Risk assessment on lending
• Basel II for syndicated lending
• Project financing weightings
• Tier I and II capital

Case Study – Corporate finance vs project finance

Project Finance Modelling 1

• Model administration sheet
• Inputs and outputs summary sheet
• Financial modelling assumptions sheet (inputs sheet)

Profit and Loss

• Income (profit & loss) statement
• Balance sheet
• Cashflow sheet
• Expenditure sheet

Operations and Funding

• Operations & Maintenance costs (O&M) sheet
• Funding Drawdown (Debt & Equity Drawdown) sheet
• Working capital sheet
• Project output sheet (power and/or steam output generated etc)

Other Spreadsheet Designs

• Revenue sheet (power and/or steam revenue sales etc)
• Tax sheet
• Depreciation sheet
• Ratios sheet
• Sensitivity calculations sheet
• Benefits calculation sheets (where relevant)

The Project Cashflow

• Recourse limitation
• Allocation of risk
• Quantification of the risk
• Structure and finance solutions

Free Cash Flow

• What is free cash flow
• Internal rate of return and other issues
• Allowing for cash sensitivities

Pre-Completion Issues

• Project overruns and delays
• Turnkey contracts
• Liquidation damages
• Completion guarantees
• Standby financing

Excel Spreadsheet Issues

• IRR functions
• Lookup functions
• Graphs
• Cell references

Risk Factors and Spreadsheets

• Implementing a VaR model
• Sensitivity analysis
• Excel solver and goalseek
• Forecasting cashflows.

This course will give you practical guidance on how project financing is different from corporate finance and looks at how various projects are financed as well as trends in corporate and project financing. The deal is examined in stages as well as risk identification and sources of funding etc. Credit enhancement factors are also considered as is the role of debt and mezzanine financing. The role of the sponsor is also examined. Numerous case studies and excel spreadsheet examples are used throughout the course to help you translate theoretical knowledge into practical applications. Emphasis is also placed on the accounting and regulatory issues.