Project Financing

The United Arab Emirates is among the fastest-growing economies in the Middle East. In the past, infrastructure projects within the country were primarily funded by the public sector. Today that is not the case! A large number of private entities now play a more significant role when it comes to infrastructure development within the country. However, most private organizations don’t enjoy the same abundance of funds as a public sector organization. Such entities that require a more lucrative, long-term approach towards funding can opt for Project Financing.

At Credico Capital, we help businesses within the industrial, energy, and telecom sectors acquire the required capital to finance their projects with a longer credit term (one to three years). We utilize a combination of several banking instruments to render a customized solution that perfectly suits your needs. To know more about the service, or to receive a quote against your requirements, contact us on +971-4-521-7560.

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How Does it Work

Project financing can only be availed by projects that are categorized as build, operate, and transfer projects (BOT). Secondly, such projects also require a special purpose vehicle (SPV). An SPV is a business entity created with the sole purpose of seeing the project to completion. The asset of the SPV acts as the collateral; as such, the borrower is not personally responsible for repaying the loan. Similarly, it is the cash flow generated by the SPV and its project that will reimburse the lender. Since project funding does not influence a company's balance sheet, it is considered as a form of off-balance-sheet financing.

Project funding is only a possibility in certain industries. These are industries which typically boast high profits and long asset lives. Among the most suitable sectors for project financing are:
 

  • Mining
  • Energy
  • Transport
  • Telecommunications
  • Oil and Gas

Business entities in other sectors can also qualify for project financing; however, the entity will need to prove that their project will be able to yield major returns.

Benefits of Projects Financing

Project finance is not the only method of funding major projects. There are, indeed, several alternative routes open to private entities globally as well as in UAE. However, project financing is, without a doubt, the most effective and convenient method of financing infrastructure projects. Like similar methods of funding, project funding provides private companies with the cash needed to complete a mammoth task. However, there are also several unique advantages to this form of financing. We’ll be discussing some of the most noteworthy of these benefits in the section below.

Nonrecourse Financing

One of the greatest allures of project financing is that it is a form of nonrecourse funding. It means that the borrower is not responsible for repaying the loan. As such, they don’t have to worry about losing their assets in the event of default. If the loan is not repaid, the lender can seize the assets of the SVP as compensation.

Greater Flexibility

The terms of a project finance loan are not determined by the reputation of the individuals involved in the project. Instead, they are based on the earning potential of the project itself. As a result, project financing allows for greater flexibility than you would otherwise enjoy.

Extended Repayment Plan

The repayment of a project finance loan is generally stretched out over a period of three years. It allows the project more than enough time to generate the money owed to the lender. Smaller projects may be accompanied by a repayment plan spanning between one to three years.

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