Unique Features In International Project Finance Europe

By John Patterson

For international projects for instance public infrastructure to be established successfully, they require financing. There is very high initial capital requirement in such entities. The country that is aspiring to have the developments can request for loans from creditors. Thee servicing of the debts usually depend on the amount of revenue being received after construction. Here are some characteristics which are common in international project finance Europe.

First, the projects are capital intensive. The loans are usually offered to big investments that requires may resources for example infrastructure projects. For effective developments, there must be large proportions of money. The construction takes a lot of time before being completed. During this phase, there is use of a lot of funds for a successful completion.

Secondly, there is higher risk. There are uncertainties associated with these deals. This is because the it involves larger amounts of money where the lending company is not sure whether it will be repaid. The transactions are also done by many parties for example the government, sponsors and the observers. This leads to lack of accountability and in the long, the lending body may fail to get their money back.

Besides, there are many participants in the initiative. There are several international groups which have major roles in project implementation. This can be the government that is entitled to approving the investment and controlling the lending body. The sponsors also take part in the process since they provide the funds for the developments. There is a group of suppliers who supply the required material and finally the contractor who supervises the construction.

Besides, the finance terms are longer. Project financing takes a long duration. The debt can only be serviced using the cash inflows received from the business. The construction period is lengthy which must be completed for the repayment to begin. The creditors invest a lot of funds which cannot be serviced within a short time. This feature applies mainly in infrastructure projects because they can be used for several years.

Besides, these deals are associated with high cost of financing. As compared to other avenues, raising the required capital through international financing is generally more expensive. The financing structure is very expensive than the other finance options. It is highly specialized which makes the expenses to increase. There is need to monitor the process which in turn increase the transaction costs.

Moreover, the returns are very low and are also fixed. The recovery of the loan is done on an annual basis upon receipt of the revenue from the established venture upon proper maintenance. There also some money spent during the management of the operations that will not be repaid. There is an agreement which spells out the exact money that will be repaid.

Finally, lending relies on the performance of the project. The sponsors are usually concerned with viability of the new venture. They also consider the vulnerability of potential risks which may affect the entity. Sponsors only finance investments which are profitable and can yield money within the shortest period of time.

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