Questions and Answers
What is the primary purpose of assessing the promoter's history and background in project finance due diligence?
To identify the background and track record of the promoters sponsoring the project
What is typically presented to the credit committee or senior management for project finance deal approval?
An appraisal note
Which of the following is NOT a key process in project finance due diligence?
Project feasibility study
What is the primary focus of legal due diligence in project finance?
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What is the ultimate goal of due diligence in project finance?
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Why is assessment of group companies necessary even when there is no direct support from companies to the project company?
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What is the primary purpose of studying the shareholders agreement?
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What is involved in evaluating the assumptions of a business model?
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Why are lenders typically more comfortable taking exposure with professionally managed companies?
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What is the ultimate goal of evaluating a business model?
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Study Notes
Deal Origination in Project Finance
- Deal origination occurs through direct relationships between relationship managers and industry professionals across different sectors.
Proposal Presentation
- Proposals are presented in the form of appraisal notes to the credit committee or a committee of senior management.
- An appraisal note should contain:
- Company background, management, and shareholding pattern.
- Physical and financial performance.
- Project purpose and costs involved.
- Means of financing.
- Market analysis for the company's products.
- Future prospects and profitability projections.
- Risk analysis.
- Terms and conditions of sanction.
Due Diligence in Project Finance
- Due diligence involves thoroughly reviewing all proposals involved in a deal.
- Multiple steps are involved in due diligence:
- Assessment of promoter history and background.
- Evaluation of the company and project business model.
- Legal due diligence.
- Analysis of financial statements and capital structure.
- Risk analysis.
- Analysis of tax effects.
- Credit analysis and evaluation of loan terms.
- Project valuation.
Key Processes in Due Diligence
- Four key processes require significant evaluation:
Assessment of Promoter History and Background
- Conducted to ensure promoter commitment to the project.
- Involves:
- Assessment of group companies.
- Track record of sponsors.
- Management profile of sponsor companies.
- Study of shareholders agreement.
- Analysis of management structure of project company.
Evaluation of the Company and Project Business Model
- Assesses the financial viability of the project.
- Involves:
- Understanding major assumptions (revenues, operating expenses, capital expenditures, etc.).
- Evaluating assumptions against industry estimates and studies.
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Description
Learn about the process of deal origination and due diligence in project finance, including the role of relationship managers and the components of an appraisal note.
