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African Project Finance
Debt & Equity

Sometimes it comes down to the details!

A Typical Project Finance Structure




PROJECT FINANCE

Project finance involves the creation of a legally independent project company financed with non-recourse debt (and equity from one or more sponsors) for the purpose of financing a single purpose, industrial asset. The providers of the funds look primarily to the cash flow from the project as the source of funds to service their loans and provide the return of and a return on the equity invested in the project. In stock-type projects, firms extract resources like oil or copper, sell the output, and use the proceeds to service debt and generate equity returns until the resource is depleted. In contrast, flow-type projects - toll roads, pipelines, telecommunications systems, and power plants - rely on asset use to generate returns for capital providers. The project owner creates a legally independent entity to own the asset. As a result, project finance represents a form of off-balance sheet finance, meaning that project assets and liabilities do not appear on the sponsor's balance sheet. The exact accounting treatment, however, is a function of the chosen organizational form (corporation, partnership, etc.) and the sponsor's fractional interest in and control over the project.

In many cases (e.g., when there is only one sponsor), project assets and liabilities appear on the sponsor's balance sheet. Finally, there is financing decision involving non-recourse debt. Because the project company is legally independent, the debt can be structured without recourse to sponsors. Legal independence also ensures that capital providers have a clear claim on the project assets and cash flows without concern for the sponsor's financial condition or for preexisting claims on its assets.  In developing countries all over the world, including Africa it is increasingly becoming impossible for governments to finance projects of national interest using public funds. Project finance has become the only option for these governments. 

PARTICIPANTS/STAKEHOLDERS IN A PROJECT FINANCE TRANSACTION

  •  Government - this participant is responsible for creating an enabling environment for project finance transactions through its legal system and other associated legislation (e.g. agreements, permits, property rights etc.).
  • Equity Funders - these are the owners of the project company and contribute the riskiest portion of the total funding of the project (equity). Their contribution is usually in the order of 40 to 50 percent, as a proportion of the total funding.
  • Nonrecourse Debt Funders - these are the providers of Long-Term loans to the transaction. They usually contribute about 60 to 70 percent of the total funding of the transaction. (usually commercial banks, Development Finance Institutions, Multilateral, Bilateral and Export Credit Agencies.
  • Operator - this is usually the Engineering Firm that is in control of the construction and operations/management of the project (e.g. Power Plant).
  • Construction/Engineering Consultants - this is the company responsible for the engineering, procurement and construction. >Equipment Supplier - this is the selected manufacturer of the key equipment to be used during construction of the project.
  • Environmental Impact Assessment (EIA) Consultant - this is the specialist who assesses whether the project meets the minimum standards of both national and international environment related legislation and agreements.
  • Affected Communities - these are important stake holders who are directly or indirectly affected by the project (e.g. communities that have to be relocated because of the construction of a power station, toll road, dam, mine etc.)
The last two mentioned participants (especially the last one) tend to be forgotten by the other key participants in the project due to the fact that they are not directly involved in the funding or construction of the project.  Forgetting to take care of the EIA and affected communities early on can lead to delays (which in turn lead to cost overruns) when they become a big issue later on. We know for a fact that there are many projects around the globe that had to be abandoned because these two important issues when overlooked or not given proper attention.  The other important thing to highlight here is that there can be an overlap in terms participation in the project by the above mentioned project participants. For example, a bank may be both an equity and a debt lender. Another area where there is a tendency to be a big overlap in roles and responsibilities is in project operations, construction, and even equipment supply.

So, it's possible that the operator, constructor, and the possible the equipment supplier is the same entity.  It should be noted, though, that this situation is now more of an exception than a rule due to the fact that separate Requests for Proposals (RFPs) for each of Operations, Construction and Equipment Supply are advertised to get as many bidders as possible in order to encourage competition and transparency. This also tends to reduce the project costs due to competitive pricing by the tendering companies.
Most Development Finance Institutions (DFIs) (e.g. World Bank, AfrDB, ADB, DBSA etc) will not participate in a project until the initial Environmental Impact Assessment is underway or completed. They would rather finance the impact studies than invest their money in a project where this issue has not been addressed. The government (and the DFIs) will also tend to take greater interest in both affected communities issues and the environmental impact assessment report.

An example of a government that tended to be work against the interest of an affected community in their own country: The Botswana government in Southern Africa has been trying for some time to remove the Khoisan people ("Bushmen") from their ancestral land in order to make way for the construction of a dam. The community won the court case giving them right to their ancestral land (towards end of 2006). So, things are not always "straight and simple" due to the fact that interests of parties that are supposed to be working together may not be "aligned". Some governments may even go against their own legislated required minimum environmental impact standards just because they want to see a project happening (especially close to elections!).

PROJECT FINANCE TRANSACTION AGREEMENTS 

  • Engineering, Procurement and Construction (EPC) Contract: - between the Project Company & the Engineering Firm.
  • Operations and Maintenance (O & M) Agreement: - between the Operations Contractor and the Project Company, obligates the Operator to operate and maintain the project.
  • Shareholders Agreement: - governs the business relationship of the equity partners
  • Inter-creditor Agreement: - an agreement between lenders or class of lenders that describes the rights and obligations in the event of default.
  • Supply Agreement: - agreement between the supplier of a critical key input and the Project Company (e.g. agreement between a coal supplier and a power station)
  • Purchase Agreement: - agreement between the major user of the project output and the Project Company (e.g. agreement between a metropolitan council and a power station)
Due Diligence 

The Due Diligence Investigation process is basically like this:

  • Team spends about a week to two weeks at the Client's offices
  • Team returns to office and review their work and contact the client if there are outstanding issues the Team wants the Client to explain or clarify (Week 2 or 3)
  • Write the Report and ask for assistance from Support Departments where Relevant (Week 3)
  • Investment Recommendation Document is Peer Reviewed (Week 3 - 4)
  • Report is presented to the relevant Investment Recommendation Committee (Week 4 - 5)
The Recommendation Report is either: 
 
  • Accepted
  • Partially Accepted (there are issues to fix, and Team is asked to resubmit), or
  • Rejected (serious issues here!)
Contents of the Due Diligence Report:
 
  • Principles of Budgeting
  • Income Statement (Statement of Comprehensive Income)
  • Balance Sheet (Statement of Financial Position)
  • Cash Flow Statement
  • Ratio Analysis
  • Investment Approval Report
  • Structure
  • Typical Forms of funding
  • Appendix: Preparing the Income Statement
  • Appendix: Preparing the Balance Sheet
  • Appendix: Preparing the Cash Flow Statement
  • Appendix: Ratio Analysis
Financial Modeling


Each Financial Modeling Spreadsheet is presented in more than one modeling style/format and complexity.

  • Cover/Title Sheet
  • Index/Table of Contents Sheet
  • Model Administration Sheet
  • Timeline Sheet
  • Inputs and Outputs Summary Sheet
  • Financial Modeling Assumptions Sheet (Inputs Sheet)
  • Income (Profit & Loss) Statement
  • Balance Sheet
  • Cash Flow Sheet
  • Expenditure Sheet
  • Operations & Maintenance Costs (O & M) Sheet
  • Funding Drawdown (Debt & Equity Drawdown) Sheet
  • Working Capital Sheet
  • Project Output Sheet (Power and/or Steam output generated etc)
  • Revenue Sheet (Power and/or Steam Revenue Sales etc)
  • Tax Sheet
  • Depreciation Sheet
  • Ratios Sheet
  • Sensitivity Calculations Sheet
  • Benefits Calculation Sheets (where relevant)
Parties to a project financing

There are several parties in a project financing depending on the type and the scale of a project. The most usual parties to a project financing are;

  1. Project
  2. Sponsor
  3. Lenders
  4. Financial Advisors
  5. Technical Advisors
  6. Legal Advisors
  7. Debt Financiers
  8. Equity Investors
  9. Regulatory Agencies
  10. Multilateral Agencies

Project development

Project development is the process of preparing a new project for commercial operations. The process can be divided into three distinct phases:

  • Pre-bid stage
  • Contract negotiation stage
  • Money-raising stage

Financial model

A financial model is constructed by the sponsor as a tool to conduct negotiations with the sponsor and prepare a project appraisal report. It is usually a computer spreadsheet that processes a comprehensive list of input assumptions and provides outputs that reflect the anticipated real life interaction between data and calculated values for a particular project.

Properly designed, the financial model is capable of sensitivity analysis, i.e. calculating new outputs based on a range of data variations.

Contractual framework

The typical project finance documentation can be reconducted to four main types:

  • Shareholder/sponsor documents
  • Project documents
  • Finance documents
  • Other project documents

Engineering, procurement and construction contract

The most common project finance construction contract is the engineering, procurement and construction (EPC) contract. An EPC contract generally provides for the obligation of the contractor to build and deliver the project facilities on a turnkey basis, i.e., at a certain pre-determined fixed price, by a certain date, in accordance with certain specifications, and with certain performance warranties.

Basic contents of an EPC contract are:
  • Description of the project
  • Price
  • Payment
  • Completion date
  • Completion guarantee and Liquidated Damages (LDs):
  • Performance guarantee and LDs
  • Cap under LDs

Operation and maintenance agreement

An operation and maintenance (O&M) agreement is an agreement between the project company and the operator. The project company delegates the operation, maintenance and often performance management of the project to a reputable operator with expertise in the industry under the terms of the O&M agreement. The operator could be one of the sponsors of the project company or third-party operator. In other cases the project company may carry out by itself the operation and maintenance of the project and may eventually arrange for the technical assistance of an experienced company under a technical assistance agreement. Basic contents of an O&M contract are:

  • Definition of the service
  • Operator responsibility
  • Provision regarding the services rendered
  • Liquidated damages
  • Fee provisions

Concession deed

An agreement between the project company and a public-sector entity (the contracting authority) is called a concession deed. The concession agreement concedes the use of a government asset (such as a plot of land or river crossing) to the project company for a specified period. A concession deed would be found in most projects which involve government such as in infrastructure projects. The concession agreement may be signed by a national/regional government, a municipality, or a special purpose entity set up by the state to grant the concession. Examples of concession agreements include contracts for the following:

  • A toll-road or tunnel for which the concession agreement giving a right to collect tolls/fares from public or where payments are made by the contracting authority based on usage by the public.
  • A transportation system (e.g., a railway / metro) for which the public pays fares to a private company)
  • Utility projects where payments are made by a municipality or by end-users.
  • Ports and airports where payments are usually made by airlines or shipping companies.
  • Other public sector projects such as schools, hospitals, government buildings, where payments are made by the contracting authority.

Shareholders Agreement

The shareholders agreement (SHA) is an agreement between the project sponsors to form a special purpose company (SPC) in relation to the project development. This is the most basic of structures held by the sponsors in a project finance transaction. This is an agreement between the sponsors and deals with:

  • Injection of share capital
  • Voting requirements
  • Resolution of force one
  • Dividend policy
  • Management of the SPV
  • Disposal and pre-emption rights

Off-take agreement

An off-take agreement is an agreement between the project company and the offtaker (the party who is buying the product / service the project produces / delivers). In a project financing the revenue is often contracted (rather to the sold on a merchant basis). The off-take agreement governs mechanism of price and volume which make up revenue. The intention of this agreement is to provide the project company with stable and sufficient revenue to pay its project debt obligation, cover the operating costs and provide certain required return to the sponsors.

The main off-take agreements are:

  • Take-or-pay contract: under this contract the off-taker – on an agreed price basis – is obligated to pay for product on a regular basis whether or not the off-taker actually takes the product.
  • Power purchase agreement: commonly used in power projects in emerging markets. The purchasing entity is usually a government entity.
  • Take-and-pay contract: the off-taker only pays for the product taken on an agreed price basis.
  • Long-term sales contract: the off-taker agrees to take agreed-upon quantities of the product from the project. The price is however paid based on market prices at the time of purchase or an agreed market index, subject to certain floor (minimum) price. Commonly used in mining, oil and gas, and petrochemical projects where the project company wants to ensure that its product can easily be sold in international markets, but off-takers not willing to take the price risk
  • Hedging contract: found in the commodity markets such as in an oilfield project.
  • Contract for Differences: the project company sells its product into the market and not to the off-taker or hedging counterpart. If however the market price is below an agreed level, the offtaker pays the difference to the project company, and vice versa if it is above an agreed level.
  • Throughput contract: a user of the pipeline agrees to use it to carry not less than a certain volume of product and to pay a minimum price for this.

Supply agreement

A supply agreement is between the project company and the supplier of the required feedstock / fuel.

If a project company has an off-take contract, the supply contract is usually structured to match the general terms of the off-take contract such as the length of the contract, force majeure provisions, etc. The volume of input supplies required by the project company is usually linked to the project’s output. Example under a PPA the power purchaser who does not require power can ask the project to shut down the power plant and continue to pay the capacity payment – in such case the project company needs to ensure its obligations to buy fuel can be reduced in parallel. The degree of commitment by the supplier can vary.

The main supply agreements are:

  • Fixed or variable supply: the supplier agrees to provide a fixed quantity of supplies to the project company on an agreed schedule, or a variable supply between an agreed maximum and minimum. The supply may be under a take-or-pay or take-and-pay.
  • Output / reserve dedication: the supplier dedicates the entire output from a specific source, e.g., a coal mine, its own plant. However the supplier may have no obligation to produce any output unless agreed otherwise. The supply can also be under a take-or-pay or take-and-pay
  • Interruptible supply: some supplies such as gas are offered on a lower-cost interruptible basis – often via a pipeline also supplying other users.
  • Tolling contract: the supplier has no commitment to supply at all, and may choose not to do so if the supplies can be used more profitably elsewhere. However the availability charge must be paid to the project company.

Loan agreement

A loan agreement is made between the project company (borrower) and the lenders. Loan agreement governs relationship between the lenders and the borrowers. It determines the basis on which the loan can be drawn and repaid, and contains the usual provisions found in a corporate loan agreement. It also contains the additional clauses to cover specific requirements of the project and project documents.

Basic terms of a loan agreement include the following provisions:

  • General conditions precedent
  • Conditions precedent to each drawdown
  • Availability period, during which the borrower is obliged to pay a commitment fee
  • Drawdown mechanics
  • An interest clause, charged at a margin over base rate
  • A repayment clause
  • Financial covenants - calculation of key project metrics / ratios and covenants
  • Dividend restrictions
  • Representations and warranties
  • The illegality clause

Intercreditor agreement

Intercreditor agreement is agreed between the main creditors of the project company. This is the agreement between the main creditors in connection with the project financing. The main creditors often enter into the Intercreditor Agreement to govern the common terms and relationships among the lenders in respect of the borrower’s obligations.

Intercreditor agreement will specify provisions including the following.

  • Common terms
  • Order of drawdown
  • Cashflow waterfall
  • Limitation on ability of creditors to vary their rights
  • Voting rights
  • Notification of defaults
  • Order of applying the proceeds of debt recovery
  • If there is a mezzanine funding component, the terms of subordination and other principles to apply as between the senior debt providers and the mezzanine debt providers.

Tripartite deed

The financiers will usually require that a direct relationship between itself and the counterparty to that contract be established which is achieved through the use of a tripartite deed (sometimes called a consent deed, direct agreement or side agreement). The tripartite deed sets out the circumstances in which the financiers may “step in” under the project contracts in order to remedy any default.

A tripartite deed would normally contain the following provision.

  • Acknowledgement of security: confirmation by the contractor or relevant party that it consents to the financier taking security over the relevant project contracts.
  • Notice of default: obligation on the relevant project counterparty to notify the lenders directly of defaults by the project company under the relevant contract.
  • Step-in rights and extended periods: to ensure that the lenders will have sufficient notice /period to enable it to remedy any breach by the borrower.
  • Receivership: acknowledgement by the relevant party regarding the appointment of a receiver by the lenders under the relevant contract and that the receiver may continue the borrower’s performance under the contract
  • Sale of asset: terms and conditions upon which the lenders may transfer the borrower’s entitlements under the relevant contract.

Tripartite deed can give rise to difficult issues for negotiation but is a critical document in project financing.

Common Terms Agreement

An agreement between the financing parties and the project company which sets out the terms that are common to all the financing instruments and the relationship between them (including definitions, conditions, order of drawdowns, project accounts, voting powers for waivers and amendments). A common terms agreement greatly clarifies and simplifies the multi-sourcing of finance for a project and ensures that the parties have a common understanding of key definitions and critical events.

Term Sheet

Agreement between the borrower and the lender for the cost, provision and repayment of debt. The term sheet outlines the key terms and conditions of the financing. The term sheet provides the basis for the lead arrangers to complete the credit approval to underwrite the debt, usually by signing the agreed term sheet. Generally the final term sheet is attached to the mandate letter and is used by the lead arrangers to syndicate the debt. The commitment by the lenders is usually subject to further detailed due diligence and negotiation of project agreements and finance documents including the security documents. The next phase in the financing is the negotiation of finance documents and the term sheet will eventually be replaced by the definitive finance documents when the project reaches financial close.

Sources of Funds

OPIC is the U.S. Government’s development finance institution. It provides investors with financing, guarantees, political risk insurance, and support for private equity investment funds. OPIC Financing provides medium- to long-term funding through direct loans and loan guaranties to eligible investment projects in developing countries and emerging markets.

OPIC can meet the long-term capital investment financing needs of any size business in a wide variety of industries.  OPIC’s minimum loan/guaranty size is $350,000 and the maximum is $250 million.  If a project requires more than OPIC’s maximum per-project lending capacity, OPIC is experienced in working with co-lenders to bring sufficient resources to a project. 

The majority of OPIC’s financing is used to cover the capital costs (such as design/engineering services, facility construction or leasehold improvements, equipment) associated with the establishment or expansion of a project in a non-financial industry or to fund the expansion of lending capacity (such as microfinance, SME lending or mortgage lending) by a financial services provider.

Political Risk Insurance

Investing in emerging markets can be unpredictable, even for the most sophisticated investors. While developing markets can offer great opportunity, they can also present a variety of political risks beyond an investor’s control. Among them:
  • War, civil strife, coups and other acts of politically-motivated violence including terrorism
  • Expropriation, including abrogation, repudiation and/or impairment of contract and other improper host government interference
  • Restrictions on the conversion and transfer of local-currency earnings
OPIC’s insurance - combined with our financing options - allows U.S. businesses to take advantage of commercially attractive opportunities in emerging markets, mitigating risk and helping them compete in a global marketplace. OPIC insurance provides innovative, comprehensive, and cost-effective risk-mitigation products to cover losses to tangible assets, investment value, and earnings that result from political perils.

Political risk insurance is available to U.S. investors, lenders, contractors, exporters, and NGOs for investments in 150 developing countries, including high-risk countries such as the Democratic Republic of Congo, Iraq, Afghanistan, and Pakistan. Coverage is offered for small and large investments that provide positive developmental benefits.

Applicant Screener

These pages will help you determine whether you and/or your company are eligible to apply for OPIC insurance and/or finance products. Though some eligibility requirements are the same across all OPIC products, some requirements vary by product. Please click below on the product that interests you to determine if you or your project may qualify for a particular type of OPIC support:

Business Plan and Financial Projections Model

The Application for Financing lists all required attachments including a detailed business plan and financial projections. A complete application package should establish the project’s and investor group’s general eligibility, and give OPIC the basis on which it can respond to the amount and basic terms of the requested financing. It should include:

  • a description of the project;
  • the identity, background and audited financial statements of the project’s proposed principal owners and management;
  • financial statements of each investor (audited corporate financial statements or certified personal net worth statements of individuals, using the SBA Personal Financial Statement Form
  • planned sources of supply, anticipated output and markets, distribution channels, competition, and the basis for projecting market share;
  • a summary of project costs and anticipated suppliers of capital goods and services;
  • a financial plan, including the sources and uses of funds for the project;
  • pro forma financial statements of the proposed project or corporate borrower and accompanying assumptions; and;
  • a description of the contribution the business is expected to make to local economic and social development

The data prepared and submitted by sponsors to substantiate sources of raw material, technical feasibility and market demand are carefully analyzed together with the financial forecasts.

Benefits of Working with OPIC

  • Experience: Unparalleled expertise in supporting projects across a variety of sectors and in the riskiest environments.

  • Claims record: Unmatched claims handling history designed to protect the investor and preserve the project. OPIC has paid nearly 300 claims for a total of almost $1 billion.

  • Terms: Ability to cover up to $250 million per project for up to 20 years. Premium rates are guaranteed for the life of the contract.

  • Financial strength: OPIC is backed by the full faith and credit of the United States Government.

  • Innovative products: OPIC is a pioneer in the field, creating new insurance products to meet investors’ evolving needs.

  • Flexibility: OPIC works with investors to customize coverage to meet the investors’ specific needs.

  • Discounts: OPIC offers an array of discounts for small businesses and investors operating in multiple countries.

  • Financing: OPIC insurance can also help investors obtain financing at lower borrowing costs.

OPIC LOAN

                                PRE-APPLICATION (SECTION IA):  LOAN REQUEST

1.  PROJECT COMPANY (Overseas entity that will be the beneficiary of the OPIC financing for the purpose of undertaking the proposed overseas investment (the “Project”) in an OPIC eligible country (the “Project Country”) (click on web link to see country list).)

      Project Company Name:

      Project Company Address (including city and country):

      Office Phone Number(s):

      Fax Number(s):

      E-mail(s):

 

Specific Project Location (if different from above):

 

2.  Authorized Representative (Individual signing the application; i.e. shareholder in or executive of Project Company, financial advisor, legal counsel, etc.)

      Name and Title of Representative:

      Relationship to the Project Company:

      Address:

      Office Phone Number(s):

      Cell/Mobile Phone Number(s):

      Fax Number(s):

      E-mails(s):

 

3.  Ownership (Please list all ultimate beneficial owners of the Project Company.  (If the Project Company is privately held please list every individual owning shares in the Project Company, including the percentage ownership and nationality of each individual.  If the Project Company is wholly or partly owned by one or more publicly traded companies, please indicate the name of each company and the place of incorporation.  If you have a complete ownership chart please attach with the link provided.)

 

     Shareholder Name                  Country of Citizenship or Incorporation                 Percent Owned

 

1)

2)

3)                                                                                                                                ___________

                                                                                                                                          100%

 

4.  SME or Woman or Minority-Owned DESIGNATION  Is any U.S. shareholder identified above a:

   (i) ___ Small or Medium Enterprise with revenues ≤ $250 million,

  (ii) ___ an individual with net worth ≤ $67 million,

 (iii) ___ woman-owned business,

 (iv) ___ minority-owned business (check all that apply)

 

Project Summary (Please summarize the Project, describing the identified market opportunity; the location of the Project; what products or services will be produced and whether for the local market or for export (and if for export, to which countries); and whether the Project is a start up, expansion, or privatization.

 

 

 

6.  Project Costs (Below please list estimated Project costs; for expansions, include only the costs associated with the expansion; alter categories as necessary to accurately reflect uses of funds.)

 Loan Term (years + grace period years)

 

 

 

US$

%

Pre-Operating Expenses

$

%

Land

$

%

Building/Improvements

$

%

Equipment

$

%

Working Capital

$

%

Cost Overrun Contingency (5% of construction cost recommended)

$

%

General Development Fees

$

%

Debt Service Reserve

$

%

OPIC Facility and Commitment Fee

$

%

OPIC Retainer/Due Diligence/Legal Fees

$

%

IESC Fees

$

%

Interest During Grace Period

$

%

Other

$

%

Total Project Costs

$

100%

 

 


7.  Project Funding (Below please summarize the sources of funding for the Project costs; alter categories as necessary to accurately reflect sources of funds.)

 

US$

%

Debt:

$

%

OPIC loan (indicate proposed term)

$

%

Other term debt (indicate proposed term and collateral)

$

%

Supplier financing

$

%

 

 

 

Subordinated Debt:

 

 

Shareholder subordinated loans

$

%

Third party subordinated debt

$

%

 

 

 

Equity:

$

%

Cash equity in the form of capital

$

%

In-kind contribution

 

 

Other

$

%

Total Project Funding

$

100%

 

How much of the equity has been formally committed to the project?

Collateral and Credit Enhancements (Please specify collateral and guaranties proposed to secure or support the OPIC loan such as pledge of shares; liens on Project Company or U.S. assets; debt service reserve accounts; personal or corporate guaranties; keyman life insurance; bank letters of credit; or other Project support.)

 

 

 

 

 

 

 

Management Experience and Track Record (Briefly describe relevant experience in the Project’s business sector of the shareholders and key Project management.  For each individual listed below please specify that person’s relationship to the Project (i.e. shareholder, CEO, etc.)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Instructions on Completing the Pre-Application Loan Request Summary

Section 1

The first section of the Pre-Application Summary is intended to capture basic information regarding the project company itself.

If the project company has already been established in the developing host country, then the blanks should be able to be filled in without difficulty. If, on the other hand, the project company has not yet been formed with dedicated resources and an established local presence, then Section 1 should include a brief description of the current status of and relevant plans for the project company, in addition to any of the contact information that is available.

Section 2

The second section, regarding the authorized representative for the submission of the finance application, should be completed by the individual who will have the most complete understanding of the project, the proposed transaction and its details, and the content of the application. In some cases, the most qualified authorized representative will be the Loan Originator. The party identified will be the primary contact for the application process, and thus should be the individual with the most ready access to information or answers to questions required throughout the application review and credit analysis processes.

Section 3

Section 3 relates to project ownership. Project ownership is important because, by statute, OPIC can only support projects that have significant US involvement. In order to satisfy this requirement, the following conditions should apply:

the overseas investment or Project Company must have significant U.S. ownership (generally at least 25% of the voting shares); and

generally at least 50.1% of the shares must be held by the private sector.

To qualify for U.S. ownership, U.S. corporate entities must be beneficially owned at least 50.1% by U.S. citizens and individuals must be U.S. citizens (permanent residents and green card holders do not qualify).

For a complicated ownership structure, OPIC needs to see the full ownership path between the project and the ultimate owners, regardless of the number of intermediate companies or levels involved. A chart of the structure is often the only means available to provide a meaningful representation of the ownership structure – which is why the instructions in Section 3 specifically suggest providing such a chart if available. The clearer and more completely the ownership structure is presented at the start of the process, the more quickly the process can move to the next step.

Section 4

The "SME Designation" section simply requires that the primary US shareholder among the ultimate owners of the project provide some basic information regarding him or her self or the business. The categories are straightforward and require only a simple check mark if they apply.

Section 5

The project summary is a vital section of the Pre-Application Summary. The project summary should not be a simple one-paragraph overview of the project. Instead, it should be a concise statement of the basic elements of the project, and must include enough substantive information to demonstrate that the financing proposal is based on a sound business model and foundation, considerable marketplace insight and intelligence, and significant relevant business experience. The project summary should answer the following questions, providing limited detail as necessary:

What does the project seek to accomplish?

What are the key elements of the project – what specific assets are needed, to be located where, for what purpose, and with what intended outcome?

What is the current market for the product(s) or service(s) involved? What is the size of the market? Is it expected to grow and, if so, what is the basis for that expected growth?

What is the competitive environment? Are there numerous smaller competitors, fewer large competitors, or little or no competition at all?

What is revenue likely to be, and what assurance exists of achieving that revenue? Can the proposed pricing that is a component of that revenue be justified based on what the market will bear, what competitors charge, and what it will cost to produce the good or service?

What is the anticipated cash flow and profitability of the project? Can expenses be controlled to ensure healthy cash flow, and can the likely long-term profitability of the project be proven to be sufficient to ensure long-term viability?

The project summary is not expected to be a rigorous analysis, but should provide sufficient substance to demonstrate that the business plan is carefully considered, well researched, and thorough.

Section 6 & 7

Sections 6 and 7, which request detailed sources and uses of the proposed project funding, should represent only the costs and funds that pertain to the project itself, and are not to include any financial activity relating to pre-existing business. It should be noted that OPIC loans are medium- to long-term in tenor, and are not intended to support the financing of short-term assets or activities, like working capital or inventory. The "cost" items should tie directly to the elements of the project summary that focus on the operational specifics of the project – e.g., the cost of erecting a main office or distribution facility, the purchase of equipment necessary to support business start-up, up-front investment in necessary marketing support, etc.

Section 8

Section 8, suggested collateral and credit enhancements, will be evaluated and ultimately prescribed by the credit underwriters, but needs to include sufficient value to cover 100% of the loan, and can include the following elements:

  • Collateral
  • Cash
  • Marketable assets - with appropriate haircuts (85% of receivables, 50% of inventory)
  • Perfected senior liens on fixed assets
  • Pledge of shares
  • Assignment of contracts
  • Concessions or licenses
  • Escrow and other accounts
  • Credit Enhancement
  • Letter of credit
  • Guarantees
  • Standby equity
  • Project Completion Agreement that guarantees the OPIC loan in the event of:
  • Late completion
  • Cost overruns
  • Early operating problems

Section 9

Section 9, management experience and track record, needs to be more than a collection of resumes, but instead should be a clear description of the roles and responsibilities on the ground in the host country supporting the successful execution of the business plan, based on significant relevant experience of key personnel.

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