Construction Fundamentals: Project Funding and Financing
This course will provide an introduction to the principles of project finance. The class will explain why sponsors are interested in using project finance to deliver major capital projects. Advantages of project finance will be discussed in comparison with corporate finance. This class will help students identify candidate projects that are most appropriate for meeting the essential criteria for project financing. Students will be introduced to typical project finance structures and learn how to develop and evaluate an appropriate financing structure for a capital project. Main sources of equity and debt will be discussed in the class, such as commercial banks, equity investors, bond markets, and leasing. Financial cash flow modeling, such as net present value (NPV) and internal rate of return (IRR), will be reviewed as investment analysis tools to evaluate project financing under uncertainty. Risk management will be utilized to identify, analyze, and mitigate project financing risks. Public-Private Partnerships (P3s) will be presented as an innovative project financing method to assist governments deliver their capital programs. The class will discuss why and when P3 should be considered as an appropriate option for project financing. Students will become familiar with special purpose vehicle (SPV) and key contractual structure of a P3 arrangement. Sources of P3 project financing and arrangements for debt repayment will be introduced to students. Key financial metrics will be presented for financial viability analysis of P3 initiatives. The principles of value for money (VfM) analysis will be discussed to evaluate financial risks for P3 projects.
Learning Objectives
- Describe the principles of project finance and summarize its historical perspective
- Identify financing types (Public, corporate, and project finance)
- Examine main differences between corporate and project finance
Explain contamination risk and co-insurance effect - Name key characteristics of a project finance deal
- Classify and discuss sponsors of a project finance deal
- Describe typical contractual schemes used in a project finance deal
- Describe fundamentals of public-private partnerships (P3s)
Identify types of P3 projects - Discuss advantages of P3s and indicate P3 potential challenges
Evaluate P3 financial models - Conduct P3 financial viability analysis and apply Value for Money (VfM) analysis
- Prepare financial modeling and develop cashflow analysis models
Name valuation methods - Analyze the viability of the capital structure
- Select a proper financial structure
- Determine cost of capital
- Perform financial risk analysis
- Distinguish between project funding and project financing
- Summarize alternative project funding sources
- List funding options and recommend their appropriate uses
- Describe risk management in project finance
- Define risk allocation principles and characterize best practices for risk mitigation strategies over project lifecycle