Such documents include:
A project agreement that describes the terms of delivery of goods or services in a project if one of the investors will also benefit from the development. For example, if a coal mining company finances the construction of a port to export its product, this agreement would govern those deliveries.
A design and construction contract concluded with design and construction organizations, as well as with equipment manufacturers and other parties at the investment planning stage.
Operation and maintenance contracts, if third parties singapore business email list are involved in these tasks. This helps to ensure reliable work on the project implementation.
A contract for the supply of energy, fuel or raw materials when needed. In the context of energy shortages in some regions of the Russian Federation, such a document may be especially important for accurate planning of income and expenses.
Conclusion of all project agreements that cover the main aspects of the initiative.
Agreement on state support, if the project requires such support for implementation.
Direct agreements establishing a link between the lender and the parties to the project agreements. These agreements are important for clearly defining how each project participant will treat the assets formed or acquired during implementation, especially in the event of property disputes.
The more project contracts that are prepared before funding is raised, the clearer the risks of the initiative are distributed. This reduces uncertainty for the lender, which increases the chances of loan approval and reduces the interest rate. A complete set of all the necessary documents is rare, but it is worth trying to collect at least some of them before receiving funding.
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Preliminary analysis and evaluation of the project financing object
Once all the required documents have been received, the lender begins assessing the project's potential. This stage includes an analysis of opportunities and risks and is divided into five separate areas:
Technological analysis is an assessment of the reasonableness of the proposed project construction plan and its operating conditions, as well as the feasibility of their implementation. Economists and credit analysts working in the field of PF banks do not only carry out financial calculations. They are forced to become experts in various fields, such as construction, industrial production, cattle breeding and others, in order to conduct a comprehensive assessment of projects.
To understand an initiative, you first need to understand how the business operates. In banks with many projects, employees work in different industries to better understand each of them. This is important because many ideas fail not because the market was misjudged. The reason is this: the project company failed to start implementation on time and according to plan.
Legal analysis is another important part of the project work. In areas such as construction, oil and gas, and pharmaceuticals, legal aspects can be even more complex than the investment part of the project. Therefore, analysts must pay special attention to legal issues to minimize risks and ensure successful implementation.
The assessment of financial solvency is based on the development of the project budget and the formation of a sufficient financial reserve at each stage. Monetary issues are resolved in the process of creating a financial model of the project, which serves as both the main analytical tool for studying its prospects and a means for achieving agreement among all participants.
The analysis of the project's effectiveness covers the calculation of standard indicators. The initiative is assessed from both the investor's and the lender's point of view.
Risk analysis focuses on assessing how vulnerable a project is to changes in forecast data. It involves examining various project scenarios and assessing potential losses for both parties – the investor and the lender.
The main work of the PF department is focused on the first two stages and on preparing data for the financial model. At these stages, it is difficult to use the same methods, because each project has its own characteristics. But at later stages, standard indicators and methods are already used, which can be described briefly and which are repeated in each project.
Preliminary analysis and evaluation of the project financing object
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All conclusions about the project concerning its efficiency, financial stability and risks are based on the analysis of the created financial model. In such conditions, it is extremely important that the basic forecast of income and expenses is reasonable, justified and balanced.
If even one element of the financial plan is not well-founded, it can render all subsequent characteristics useless. These parameters play a key role in the decision-making process and include:
Basic investment performance indicators such as net present value (NPV), payback period (PBP), and internal rate of return (IRR). Although minor adjustments may be made to this list in some cases, this is rare. These parameters are analyzed from both the investor and the lender perspectives, which implies the need to allocate net cash flow to each of the participants.
Total debt coverage is a ratio that a lender uses to determine what portion of a project's revenue will be used to pay off the loan. The lender sets a limit on this portion to ensure that the debt is repaid reliably.
This ratio is calculated as the net income of the project divided by the amount that must be paid in interest and principal. Typically, a normal value for this ratio is between 1.2 and 1.5, depending on how stable the project's income is. This means that about a third of the income should remain with investors, which helps the lender be confident in the reliability of payments even if changes occur in the company's operations.
Since almost no project has fully guaranteed commercial characteristics, implementation takes place in conditions of uncertainty. Even the most thorough study may turn out to be only an assumption. Therefore, the lender not only checks the baseline forecast, but also assesses the limits to which the initial data can change so that the project still remains successful. To do this, a sensitivity analysis is carried out to understand how changes in key parameters will affect the initiative and determine the boundaries within which the project will remain financially viable and effective.
Evaluation of efficiency in the context of a pessimistic scenario is a deepening and expansion of the previous analytical block. In this case, specialists focus on the analysis of one or several project parameters that deviate from the baseline scenario. The main task is a detailed study of potential losses, identifying the conditions under which they may occur, and developing strategies to minimize them.
This short list of indicators and tools can be expanded as needed by various analytical methods. However, in most cases this is not required. This is explained by the fact that project financing is often associated with a high degree of uncertainty and significant limitations in the application of financial mathematics. The main focus is on improving the quality of the model used to calculate the presented list of indicators.
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