Project Loan is the funding of long-term infrastructure and industrial projects using a limited recourse of financial structure.
Project debt is typically held in a sufficient minority subsidiary not consolidated on the balance sheet of the respective shareholders (i.e., it is an off-balance sheet item).
The project finance structure for a build, operate and transfer (BOT) project includes multiple key elements.
Project finance for BOT projects generally includes the company’s sole activity is carrying out the project by subcontracting most aspects through construction and operations contracts. Because there is no revenue stream during the construction phase of new-build projects, debt service only occurs during the operations phase.
For this reason, parties take significant risks during the construction phase. The sole revenue stream during this phase is generally under an off-take agreement or power purchase agreement. Because there is limited or no recourse to the project’s sponsors, company shareholders are typically liable up to the extent of their shareholdings. The project remains off-balance-sheet for the sponsors.