The main ways of financing engineering projects

The main ways of financing engineering projects

Project financing mainly relies on the project's own future cash flow and the formation of assets, rather than relying on the creditworthiness of the project's investors or sponsors and assets other than the project itself to arrange financing. So what are the financing methods of engineering projects? The following is my organization of the main ways of financing engineering projects related content.

ABS way

ABS (Asset-Backed Securitization) refers to asset-backed securitization. Specifically, it is a project financing method based on the assets owned by the target project, with the future earnings of the project's assets as a guarantee, through the issuance of bonds in the international capital market to raise funds. Its purpose is to improve the credit rating through its unique way, so that the original credit rating of the project can be lower credit rating into the high-grade securities market, the use of the market credit rating, bond security and liquidity, bond interest rates, the characteristics of the low substantial reduction in the issuance of bonds to raise funds cost.

(1) The operation process of ABS financing. Mainly includes the following aspects:

1) the formation of SPC. that is, the formation of a special purpose company SPC (Special Purpose Corporation). The organization can be a trust and investment companies, credit guarantee companies, investment insurance companies or other independent legal persons, the agency should be able to obtain international authoritative credit assessment agencies higher level of credit rating (AAA or AA level), because the SPC is the carrier for ABS financing, the successful formation of SPC is the basic conditions and key factors for the successful operation of ABS.

2) SPC and project combination. That is, the SPC looks for objects that can be used for asset securitization financing. Generally speaking, the assets attached to the investment project can be financed by ABS as long as they can bring cash income in a certain period of time in the future. They can be future rental income from real estate, income from future operations of aircraft, automobiles, etc., income from export trade of project products, future freight income from airlines, ports and railroads, toll revenues from toll roads and other utilities, taxes and other fiscal revenues, and so on. The enterprise (project company) that has ownership of such future cash flows becomes the original equity holder. The assets represented by these future cash flows are the material basis of the ABS financing method. In ABS financing, generally should choose the future cash flow stable, reliable, less risky project assets. SPC for ABS method of financing, its financing risk is only related to the future cash income of the project assets, and the original equity holders of the construction project itself has nothing to do with the risk.

3) Credit enhancement. Credit enhancement is utilized to obtain the desired credit rating for the group of assets. To do this, the existing financial structure of the project assets is adjusted so that the project finance bonds are investment grade and meet the requirements of the SPC's conditions for contracting ABS bonds, which are upgraded by the SPC through the provision of specialized credit guarantees.

4) SPC bond issuance: SPC issues bonds directly in the capital market to raise funds, or through the SPC credit guarantee, other institutions to organize bond issuance, and the funds raised through the issuance of bonds for project construction.

5) SPC debt service. Since the original beneficiary of the project has ceded the right to future cash income from the project assets to the SPC, the SPC will be able to utilize the cash inflow from the project assets to settle the principal and interest of the bonds issued in the international high-grade investment securities market.

(2) the difference between BOT and ABS. BOT and ABS financing methods are applicable to infrastructure construction, but the two in the operation of the characteristics and the impact on the economy and other aspects of the existence of a great deal of difference, the main differences are:

1) the operation of the degree of simplicity and the cost of financing the difference between the BOT method of operation is complex and difficult. The use of BOT mode must go through the determination of the project, project preparation, bidding, negotiation, document contract signing, construction, operation, maintenance, transfer and other phases, involving government concessions and foreign exchange guarantees and many other links, involved in a wide range of not easy to implement, and the cost of its financing is also due to the intermediate links and higher. the operation of the ABS financing mode is relatively simple, which involves only the original owner of the interest, the SPC, investors, securities underwriters, the SPC, the SPC, the SPC, the SPC, the SPC, the SPC and the SPC. ABS financing is relatively simple in operation, involving only the original equity holders, special purpose companies, investors, securities underwriters and other subjects, without the need for government licenses and foreign exchange guarantees, and is a financing method that operates mainly through private non-government channels. It not only realizes the simplicity of operation, but also reduces the cost of financing.

2) the difference of project ownership and operation right, the ownership and operation right of BOT project belongs to the project company during the concession period, and the ownership will be transferred to the government after the expiration of the concession period. After the maturity of the bond and the repayment of the debt with the income generated from the assets, the ownership of the assets reverts back to the original equity holders. Therefore, the use of ABS for international project financing of infrastructure can enable the host country to maintain control over the operation of the project, but it can not get foreign advanced technology and management experience.

3) Difference in investment risk, BOT project investors are generally enterprises or financial institutions, their investment can not be casually abandoned and transferred, each investor bears a relatively large risk. The ABS project investors are the international capital market bond buyers, a large number, which greatly disperses the investment risk, at the same time, this bond can be circulated in the secondary market, and after the credit enhancement to reduce the investment risk, which has a strong attraction to investors.

4) the difference in the scope of application, BOT mode is the non-government capital involved in the field of infrastructure, the essence of the BOT project in the concession period of the privatization, therefore, some of the key sectors of the national economy and people's livelihood can not be used in the BOT mode, ABS mode is not, the issuance of the bonds in the period of time, the ownership of the assets of the project, although the ownership of the project is owned by the SPC, but the project's operational decision-making power is still the original equity holders. The ownership of the project assets belongs to the SPC during the bond issuance period, but the decision-making power for the operation of the project remains with the original owner. Therefore, there is no need to worry about important projects being controlled by foreign investors when using ABS. For example, major infrastructure projects such as important railroad trunk lines and large-scale power plants, which cannot adopt the BOT method, can consider adopting the ABS method. In contrast, in the infrastructure sector, the ABS approach is more widely used than the BOT approach.

Meaning of Project Financing

1. Direct Financing Mode

Direct Financing Mode: a mode in which the project investor directly arranges the financing of the project and directly assumes the corresponding responsibilities and obligations in the financing arrangement. It can be divided into centralized and decentralized forms according to the different needs of the main body of shareholders. Direct financing mode as a structure of the simplest financing mode, has the advantages of flexible arrangement of financing structure, reduce financing costs, etc., but also need to pay attention to how to limit the lending bank's right of recourse to the investor.

2. Project Company Financing Mode

There are two main forms of this mode: single project company mode and joint venture project mode. The former reduces the investor's direct risk in the project compared to the latter, and plays the role of risk sharing, while the former is more complicated to run than the latter. Overall, the project company financing model in the arrangement of the tax structure, the choice of debt form lack of flexibility.

3. Leveraged Lease Financing Model

It refers to a financing model in which the project investor arranges for the lessor of the assets in the leveraged lease structure to finance the purchase of the project's assets and then leases them to the lessee. This model has a number of advantages, the most prominent being the benefit of pre-tax tasted rent and more flexible debt repayment. At the same time, because of the many participants in this model, it is more complex to run, and poor flexibility in rearranging the financing, bringing certain limitations to investors.

4. Facility Utilization Agreement (FUA) financing model

As the name suggests, this model refers to an agreement between the provider of a facility or service and the user of the facility, which is "payable regardless of delivery" in nature. He requires the construction of the project is irreplaceable, and the completion of this financing model needs to be supported by a sound agreement, but also a strong market regulator to impose rewards and penalties.

5. Product Payment Financing Model

This model uses the ownership of the products produced by the project and the proceeds from their sale as collateral, rather than an assignment or mortgage. This makes the price of the product, the sales are relatively stable, the income is more secure. It should be noted that product payments are only a transfer of property rights, not the product itself.

Types of Project Financing

1. According to the nature of the funds financed

(1) equity funds

(2) liability funds

2. According to whether the financial institutions through the classification of

(1) direct financing

(2) indirect financing

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3. According to the duration of the funds financed

(1) long-term funds

(2) short-term funds

The main characteristics of project financing

Project financing and traditional financing methods, compared with the following characteristics:

1. The exclusivity of the main body of financing.

Project financing mainly relies on the project's own future cash flow and the formation of assets, rather than relying on the creditworthiness of the project's investors or sponsors and assets other than the project itself to arrange financing. The exclusivity of the financing subject determines that the creditor is concerned with how much of the project's future cash flow can be used for repayment, and the amount of its financing, cost structure, etc. are closely related to the project's future cash flow and asset value.

2. The limited nature of the recourse.

Traditional financing methods, such as loans, creditors are concerned about the investment prospects of the project at the same time, pay more attention to the creditworthiness of the project borrower and the reality of the assets, recourse is complete; while the project financing methods, as mentioned above, is the project on the project, the creditor, in addition to the contracting party and the contracting party has a special agreement, can not be recourse to the project itself other than any form of assets, that is to say, the project financing is entirely dependent on the project's future economic strength. The project financing is entirely dependent on the future economic strength of the project.

Expansion: Negotiation skills for the financing process

First of all, we should understand that we are not dealing with the same investors, and more often than not we are dealing with multiple investors at the same time, who have different backgrounds, preferences, and knowledge structures. The issues of concern and the way to ask questions are not the same, so the negotiation, there is no skill to speak of, here I speak of "skill", in fact, is a psychological preparation process, in this process, we can increase their confidence, reduce their vulnerability.

First, in a few minutes time, the best way to introduce is to find a counterpart (in the industry, success or failure examples), talk about counterparts will make it very easy for the other side to understand what you are doing. At the same time also examines the investor's degree of understanding of your field. At the same time to tell each other their position in the market, including whether it is in the early or late stage, annual sales, share of the market. Of course, the most important point here is that you can immediately distinguish the difference between you and your competitors in order to strengthen the advantages of their own projects.

Second, do not say descriptive a lot of language when introducing yourself. To use a few points to position, so that the other party clearly know what you do, the state of the enterprise. If you think in the investor's point of view, it will be easier to catch its attention. Because every investor will receive a lot of business plans, will meet a lot of people, the key is how to distinguish you from others. Then, tell the other side of the future development plan. At this point the investor will be positioned in relation to their own investment strategy. If it happens to match, naturally, will begin to be interested.

Third, how much money you want. This question must be the first to be raised by the investor, this is a skill. Everyone understands a truth, the last price . People are worth the most money, although the plan has a detailed amount of money used inside the amount of money and financial analysis, etc., but the investor will also ask you, if he does not ask, you do not emphasize how much money you want, but rather focus on the topic of your advantages and his earnings ......

Fourth, the miracle comes from the accumulation of very small things that need to be done constantly . Meetings with investors often leave only an impression, so further follow-up is needed. In fact, the investor's time is very limited, if willing to spend time on you, it is a major good news for you. If an investor is not willing to spend anything on you, it means he is not interested in you. If an investor is willing to talk to you, to be well received, deal with the relationship, so that the investor gradually deeper understanding of you, and more and more to the core of the enterprise to move forward.

Fifth, the core business issues are financial projections, such as business model, team, the form of the existing market, the competitive environment, the service object, the next 3 to 5 years of income and profits, etc., the financial projections are reflected in the business model and profitability model, and at the same time, need to persuade investors that they can indeed achieve such a goal. Investors value companies in a very simple way: one way is the price-earnings ratio (P/E) method, where the PE value is multiplied by the future profit forecasts to determine the value of the company. A normal PE is around 10 to 15. If the company is growing very fast, the PE will reach 30, 50 or even 1000, and this will be used to estimate the minimum value of the company. The investor will use this to create an internal report on how much the company will be worth in three years time and how much they can make on their investment now. You understand how they do business value assessment of your project (business), it will help your negotiation initiative.

Sixth, understand the language system of venture capitalists, to realize that their own and investors "language system" is different, entrepreneurs tend to talk a lot of investors are not concerned about things.

Investors love to ask a few questions: What is the core value of your idea? What value does it bring to customers? Why can you do it? Where are the core competencies? These questions entrepreneurs have to think clearly, and know how to use refined language to express.

On the issue of core value. Many business models are not the first entrepreneurs, for example, I often come into contact with a number of entrepreneurs about the IT industry, they commissioned us to help write a business plan, but, in terms of the general environment (industry), since everyone wants to do this, so what are your best tricks? What makes you think you can do it better than anyone else? The answers to these questions are the expression of the core values, not the rhetoric of the model itself. There is also the question of "customer value". Any product will only be used if it brings value to others. Don't say over and over again how you're addicted to it, how you love it, it's not convincing.

Seven, there is a common mistake is to talk about the goal, but there is no program of action, action plan. In fact, whether we must achieve "China's largest" and other goals is not important, the important thing is how to break down the goal, even if the goal is not so grand, but let people feel that you can step by step close to the goal. The ability to get close to the goal is the core competitiveness of the entrepreneur. The lack of core competencies is the main reason why so many programs are rejected.

Eight, do not doubt the investors, do not hide their core parts, if the worry, in case of financing failure, everything I just said, whether I have exposed the trade secrets. I contacted a very large number of entrepreneurs will have the same mentality, both want you to help write a plan, or recommended investment institutions, but also worried about you copying, plagiarism, his business secrets, he just kept emphasizing: "My model is unique, the profitability is extremely strong, if you are interested in, let's talk about it, not interested in, let's not waste each other's time ......". First of all, investors will not make any decision or attitude without knowing the details of the project. In addition, such entrepreneurs can only make investors feel that he does not have any core competitiveness, and his business plan must be extremely high in reproducibility, otherwise, he will not be so unconfident. If you want to start a business, but still this "fear", it is best not to try, I can tell you for sure, you will not have a chance to ......

Nine, many entrepreneurs in the process of financing, easy to show fear of being fooled ( or ). VC play) mentality, worried about the future cooperation of the passive situation, worried about the final VC eaten. In fact, these are just projects do not understand the VC caused by the purpose of the VC is to make money, will not be naive to "hurt him to make money for his partners" level; In addition, pre-venture, I suggest that entrepreneurs should at least read a book - "Company Law", detailed understanding of the operation of joint ventures or cooperative companies and so on. In addition, I suggest that entrepreneurs should at least read a book - "Company Law", to understand in detail the mode of operation of joint ventures or cooperative companies, so that they can clearly understand their rights. In addition, it is recommended that before looking for VC, to collect some information about VC, at least to understand his investment methods and processes, so that, in the negotiation, do not say "self-defense nature" of the topic, and will not let the VC feel that you do not trust, do not understand them, so entrepreneurs in contact with the VC, especially the first time to contact, do not act overwhelmed. Therefore, entrepreneurs in contact with the VC, especially the first contact, do not show overwhelmed, always thinking about how to protect their own problems, which will make the old and slippery VCs a glimpse of your weaknesses.

Tenth, in the project's pre-planning, or in the negotiations, entrepreneurs should maintain their own initiative as well as the bottom line of cooperation, do not in order to obtain funds and excessive sell their own due interests and rights, otherwise, the investor will not eat you, because he has decided to give up the investment. Many projects ask me, business plan, I should transfer how many shares appropriate ah, we do not have the money, technology shares and can not meet the amount of shares; in fact, at the beginning of the design of financing programs, the project has been misplaced, not you in the pooling of funds to cooperate, but you in the transfer of shares to attract funds, the two meanings are different, the former is like a friend to work together, did not begin to fund it, on the mutual fight for their respective rights and interests, while the latter, the entrepreneur is a friend to work together, not to start funding it, to fight for each other. Rights and interests, and the latter, entrepreneurs are active, did not attract VC before we have 100% of the shares, now I only transfer a little bit to attract some funds, rather than working for the VC, which I hope that the project can be correctly understood and recognized, especially in the negotiation, the bottom line is not too low, and do not easily be broken.

eleven, there are some small tips for conversation, in the negotiation time also has great significance. For example, try to use a question-and-answer style, do not investors ask a question, you explain a lot of questions, and do not they ask a lot of questions, you answer with an answer, the best way, what he asked, what you clearly answer; in addition, ask questions, also try to leave space, for example, do not ask: "Do you have any questions? " Instead of asking, "Do you have any other questions? Also, don't feel that "caution" is your virtue. In front of VCs, don't directly ask for insider information about their business, such as: "Can I learn about your successful investment cases?" or "Can I check out your successful investment cases? Or "Can I find out how your company is funded? etc. If you are really interested in these questions, please use other channels to find out after you leave. After all, VCs are human too, and no one likes to be suspected in this way. Also, at the end of the negotiation, there is generally not very obvious results, more for you to wait for news, this time, do not ask: "You think my project, how big is the opportunity to get your investment", not to mention: "I hope that as soon as possible to give me a reply, because there are still a lot of investment companies in the appointment me "Otherwise, all the efforts of the negotiation process, will become the past.

twelve, because the current domestic capital market just started not long, there are many irregularities, especially some intermediary companies, there are a large number of irregularities, and even deception, but, whether you have been cheated in the past, when you see a new investor, do not say, otherwise, the atmosphere of the negotiation will be spoiled by you, you can take the past experience as experience in the negotiation process with the You can take the past experience as an experience, in the negotiation process with the new VC, as a warning to remind themselves, but do not make the mistake of "skepticism", because, once detected by the VC, your "caution" becomes "insincerity! ", if in the negotiation process, the VC put forward the same trick you were cheated in the past, you just need to politely say: "Oh, I have contacted a similar investment institutions, but then they have problems, I would like to know, your company is how to deal with such a problem?

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This will be fine, one situation is that he will seriously answer to eliminate your concerns, the other is that he ran into a nail, the deception was recognized, so that, too, do not dare to be in the presumption of action.

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