Enterprise Management: A New Mode Of Project Financing And Its Characteristics

At the initial stage, the lenders in the project financing market are mainly foreign banks. The loan types include commercial loans, export credits and government loans. Most of the loans are used to import machinery and equipment produced abroad. The lender not only requires to set guarantees on all the assets of the project, but also often requires and can obtain guarantees from the sponsor, even the local government where the project is located, although this is not a common arrangement in the project financing mode. For this reason, the investment and financing community here explains the two new models of project financing.

After years of development, the project financing transaction mode of Chinese companies and banks has changed greatly. At present, there are two main types of project financing transactions in China: project financing in China and project financing outside China. The two modes have different characteristics.

　　 1、 Domestic project financing

(1) Chinese local banks have become the main source of funds;

(2) Large state-owned enterprises with the strongest bargaining position in the market, including PetroChina and Sinopec, have gradually accepted this financing model;

(3) At present, the transactions using the project financing mode are mainly concentrated in chemical engineering, nuclear power plants, highways, bridges and other infrastructure construction projects;

(4) The transaction is subject to the laws and regulations issued by the relevant regulatory authorities in China, including the most directly related rules such as the project financing business guidelines, as well as some indirect provisions, such as the Interim Measures for the Management of Fixed Assets Loans, the Interim Measures for the Management of Working Capital Loans, and the Guidelines for Syndicated Loan Business;

(5) The characteristics of the buyer's market are very obvious.

The current domestic market is in a state of tight monetary policy. Due to the "post financial crisis" era in the world and other reasons, the capital of foreign banks is relatively tight. However, the borrower of project financing still has a strong negotiating position and can ask for favorable loan conditions from the lender. This is mainly because the project sponsors are very powerful companies, the project itself is also large, and usually has strong support from the local government. These favorable loan conditions may not appear in ordinary transactions. For example, the borrower of the syndicated loan may require the following clauses to be added to the loan agreement: if any member bank fails to make loans in time, its share not provided shall be supplemented by the lead bank and other participating banks. Another example of a clause is if any Lender or Agent fails to loan Or transfer funds, interest shall be calculated and paid to the borrower according to the loan default interest rate specified in the loan agreement.

　　 2、 Overseas Project financing

In the past, our government has supported enterprise "Going global" businesses are developing rapidly, and these transactions often need the support of Chinese banks. Many of these transactions adopt the project financing mode, and have the following characteristics:

(1) Chinese banks have rapidly grown into important participants in overseas project financing transactions, playing the role of lead banks or arrangers in some transactions. Although Chinese banks still have much to learn, they have greatly improved their business experience and market influence with sufficient capital strength.

(2) Most of the sponsors or borrowers have Chinese funded backgrounds. Chinese banks, as lenders, not only require guarantees on all assets of the project, but also often require the Chinese parent company behind them to issue guarantees or commitments.

(3) Most transactions are concentrated in the field of natural resources.

(4) For such cross-border transactions, some specific laws and regulations will be applied. For example, if the Chinese parent company provides guarantee to the lender in the transaction, the rules on external guarantee need to be followed. Generally speaking, the Chinese parent company needs to obtain the approval of the foreign exchange management department and go through the registration procedures in time before providing guarantee.

With the internationalization of RMB, in recent years, under the strong promotion of the government, the process of RMB internationalization has continued to develop in depth. At present, it has been promoted to the field of capital account, and overseas entities are already likely to raise RMB funds from Chinese banks for project construction. However, at the practical operation level of cross-border RMB business, including capital entry and exit, account opening and supervision, and provision of guarantees, the relevant departments need to make more specific policy arrangements in a timely manner. It is believed that the interpretation of the two new project financing models by the investment and financing community will help entrepreneurs in choosing project financing.