Project Finance

Kareem Mohsen ElTair

3617

1-

Risks

Pre completion

• Activity planning
• Technological
• Construction/Completion
• Financial Arrangement.

Post Completion

• Operating /Performance
• Maintenance
• Market

Inflation Risk

Environmental Risk

Country/political Risk

Regulatory Risk

Credit/Counterparty Risk.

Interest Rate.

Exchange Rate Risk.

• Activity planning for the operations OTS package

It was pretty obvious that particular risk has been allocated by NRT in a very good and professional way leading to a successful approach in closing the contract in few days only after its contractual time.

Risk has been mitigated by talking the risk by themselves where seems that they take care of everything related to that planning and despite everything went good but it was better to subcontract the planning with step in condition in case of failure .  

• Construction risk allocation -  

• Deadline for completion plan
• Units testing ( testing verification of MPS.( minimum performance standard)
• Final project testing.
• If final plant testing not met – liquidate and make good.

Also mitigation for construction phase was by contracting the D&C JV to take care constructions and delivery.

A creditworthiness analysis should be done for this JV also a put or pay condition in case fails to deliver the required item for the project.

A step in condition also should be there.    

Technological Risk

It has been said that they will use driverless trains which the first time to use the same in Australia , so they hired a specific contractor to Project-manage this type, who have the required experience in such a projects to guarantee successful one.

Specifically for rolling stock and signaling system JV hired an experienced French subcontractor to take care of this type of technology and operations.  

Operational Risk allocation –

Allocated by assigning contractor from JV to do the task whom have the experience which mitigate the risk and this two contractors John Holland and UGL rail services has a previous experience with Hong Kong rail way.  

Off take agreement

They have off take agreement with the government with a typical availability payment system where payments will be done irrespective of demand all patronage risk will mitigated by the state.

In this case even we should take care of state financial position as in case if they failed to pay what they committed to do there should be a clause where NRT will take the authorization to put the tariffs and start collecting revenues directly to take care of their liabilities and also of the state failed for any reason to pays we have the right to extend the concession period with direct operation mode.    

Environmental Risk – should also been taken in care as a such time critical time operations cannot be interrupted by any external factor , suggestions to have an insurance policy.

Financial risk has been allocated to a financial sponsor and capital arranger, they should be a creditworthiness even for both debt providers to guarantee the service and the equity providers to guarantee their leverage.  

Equity risk mitigated by deferred and distribute the equites between 6 players.

The repayment portion of the SCC should be simulated and linked with the same KPI or delivery clauses which are (certain conditions having first been satisfied including minimum of equity having been provided and the construction have been advanced to a certain level) contribution to be followed by the contractors in order to be able to receive these payment and pay both contractors and banks, failing to do that will be a big mess.  

Refinancing Risk has been partially mitigated by NWRL transaction by the state proposing CDPD, where government will give 50% contribution of the senior debt under certain conditions, but what if the state itself failed to avail this offer or mitigation, there should be a terms to refinance or butting in backup plans how to refinance this with other banks or directly with the federal government.

Market Risk like demand analysis and sensitivity analysis has been taking care by the state so all risk been handled to the as they will pay whatever change in the demand happen.

Maintenance Risk has been handled to the contactor JV.

Inflation Risk - Pass through off take agreement, sensitivity.

Interest rate risk – IRS.

• Exchange Risk
• Interest Rate
• Inflation
• Environmental
• Regulatory
• Political
• Country

Overall the project was handled in terms of risk in a very professional way leads to its success.

2-

Benefits from refunding bid cost to unsuccessful bidders

• Encourage competition.
• Attract high quality bidder.
• Implying trustiness.
• More bidder means best prices for the bid.

Question II

1

2

The proposal is not creditworthy because the first year the CFADS is less than interest + Repayments which is DSCR is less than 1.