Chapter 2 Financing the project

Projects can be funded by different types of external finance depending on the type of project, for instance a Build Own (Operate) Transfer project (BOT), a Public Private Partnership (PPP) project, or a property development. Funding may be equity and mezzanine funding, institutional funding, bank lending, bond issues and/or grant funding. The funders want the project to be constructed to deliver the income stream required to pay interest and repay principal on the loans and pay dividends on the share capital. As far as possible, funders want the risks borne by the project company to be distributed to other parties involved in the project, for instance the contractors who build and operate the facility, or to be covered by insurance. Funders will not want to take a credit risk on the contractors and will look for adequate guarantees and bonding. Funders will also be looking for a viable security package which will include rights to step into the project contracts and rights to call a default on the funding arrangements if covenants, including those relating to the carrying out of the project, are breached.