Finance is said to be life blood of any business organization and project finance is a long-term financing of any business venture including infrastructure, commercial and industrial projects based upon the projected cash flows of the project rather than appraising the financial statements of its stake holders & sponsors said CA Julfesh Shah while addressing a webinar on Essentials of Project Finance organized by Dhule & Nandurbar Chapters of WIRC.
CA Shah further clarified that organizations require long term finance to meet basic objectives, to set up, modernize & expand business activity,to acquire fixed assets for facilitating productive endeavor and require short term finance to meet the day-to-day working capital requirements i.e operating cycle.Â
A portion of current assets is to be met through long term sources forÂ having long term stability, liquidity etc in the event of exigencies. Project Finance is a process of evaluating and selecting long term investments that are consistent with the goal of shareholders (owners) which is wealth maximization.
He further enlightened that due to the complexity and uniqueness involved,a capital project needs to be launched after analyzing past environment, studying existing environment and forecasting future environment. Proper presentation and detailed analysis is necessary for seeking any type of financial assistance from financial institutions.
A detailed & descriptive project report is prepared. Important points that are necessarily to be incorporated in the project report are nature of projects, general information, information about promoters, technical details of the project, marketing & selling arrangement, financial feasibility, economic benefits.
CA Shah further said that we need to determine the nature of Project whether it is a New / Green Field Project, Expansion /Modernization of existing facilities at the same or different location, Forward / Backward Integration, Cost Reduction Project ,Diversification, Debt Restructuring Schemes), Technical details like Capacity, Available working days/shifts, Manufacturing process, Location, Raw materials, Power requirement, Man power requirement, Product mix,Finalization of Source of Finance Own FundsÂ i.e. Retained Earnings, Promoterâ€™s Contribution, Borrowings – Internal Sources, External Sources,Economic Benefits like whether helpful for development of ancillary units, Local manpower engaged, Foreign Exchange & Eco-friendly elaborated CA Shah.
The key to any project finance is to use a right mix of debt and equity. There are a number of issues highlighted which need to be considered for the purpose of financing of the project. Besides, it is important that due care is taken in drafting the documents concerning the financing of the project.Â
The companies should adopt the project financing structures so that the objective of shareholderâ€™s wealth maximization can be achieved.
As the world is heading towards a global integrated market and as the demand for private capital in infrastructure assets is increasing, project finance will continue to play an important role in both developed and developing markets,concluded CA Shah.CA Avinash Ghundiyal,Chairman made welcome remarks & CA Santosh Nankani,Convenor, introduced the speaker & proposed vote of thanks