PPP project financing channel method: financial leasing

Although the current PPP project is very popular, but the financing problem or become a roadblock. ppp project financing can be divided into equity and debt financing, can involve 19 types of large financing channels 36 kinds of specific financing methods, complex and diverse. It is complex and diverse. Because PPP projects are mostly long-term contracts, need to match the stable medium- and long-term funds, in order to avoid the project construction and operation of the management risk of cash flow, and financial leasing mode and this demand is very suitable for gas supply, water supply, power supply, toll roads, tourist attractions, etc. Both cash flow, and fixed assets of the PPP project is particularly applicable. Therefore, financial leasing will be one of the important financing methods for PPP projects.

Financial leasing is a set of financing and financing, trade and technology update in one, is essentially to take the financing of the way to achieve the purpose of financing, applicable to the infrastructure sector and other large-scale, long-term PPP projects. The main modes of financial leasing include direct financial leasing, equipment financial leasing and sale and leaseback.

In direct financial leasing (or equipment financial leasing), the leasing company finances the purchase of equipment or real estate, which is leased to the project company. During the lease period, the ownership of the equipment belongs to the leasing company, and the project company has the right to use the equipment and the right to income, and pays rent to the leasing company in installments. This model can solve the problem of financing large-scale equipment or real estate with high acquisition costs, and alleviate the pressure of capital funding at the initial stage of the project.

In sale and leaseback, the project company sells its own equipment or real estate to the leasing company and then leases it back for use, thus revitalizing the large stock of assets and improving the financial situation.

The above model compared to other financing methods such as bank credit, financial leasing obviously has fewer restrictions, simple procedures, flexible, able to adjust the tax, improve the financial situation, the use of funds for a long period of time, the lessee's debt servicing pressure is small, to reduce the lessee to buy equipment directly from the intermediary links and costs, etc. Advantages; and through the ? Finance Leasing Not only can you get valuable funds, but more importantly, you can realize the expansion of enterprise assets, business structure adjustment, revitalization of stock assets, and realize the conversion of business mechanism, management upgrading, to achieve the maximum value-added purpose of capital. Therefore, it is very suitable for PPP projects that have both cash flow and fixed assets, including gas supply, water supply, power supply, toll roads, tourist attractions, etc., to solve the capital problem through financial leasing.

According to statistics, at present, the PPP project library **** into the library of 15,966 projects, the total project investment of 15.9 trillion yuan, involving energy, transportation, water conservancy, environmental protection, agriculture, forestry, major municipal engineering and other fields, so, ? Financial leasing business intervention in the development of PPP is just the right time, financial leasing companies should also play an important role in the PPP tide, actively and better participate in the field of public **** services, to seize the business opportunities of infrastructure PPP model.? Dr. Zhu said in his lecture.

In fact, as a new choice for PPP project financing, the business model of financial leasing also responds to the policy call of the central government to vigorously promote the PPP model, which is conducive to the revitalization of the stock of assets of the local government, and to reduce the burden of local government debt. The General Office of the State Council, "Guiding Opinions on Accelerating the Development of the Financial Leasing Industry" (Guo Ban Fa [2015] No. 68), puts forward general development opinions on the financial leasing industry, and explicitly proposes to ? Increase the people's governments at all levels to purchase financial leasing services in public *** services, infrastructure construction and operation? , which provides policy support for the financial leasing business to intervene in PPP projects.

PPP projects to use live, good use of financial leasing

objectively speaking, at present in our country, the use of financial leasing in the PPP project practice is not much, this mode is still in the exploration stage, so on the one hand, the need for PPP projects to actively introduce the financial leasing mode, live, good use of financial leasing; on the other hand, the financial leasing company should also have innovative ideas, and the financial leasing company should also have a good use of financial leasing services. Therefore, on the one hand, PPP projects need to actively introduce the financial leasing mode, and use and make good use of the financial leasing mode; on the other hand, the financial leasing company should have the spirit of innovation and actively participate in PPP projects.

1PPP project to grasp the introduction of good mode

That is, the PPP project should be based on the requirements of the project financing, to choose the direct financial leasing, equipment financial leasing or sale and leaseback financial leasing mode.

2 use a good form of intervention

Financial leasing companies involved in PPP projects can? traditional intervention? The depth of the intervention?

? Traditional intervention? , refers to the financial leasing company as a capital provider to participate in PPP project financing. This approach is mainly in the construction phase of the PPP project, and the business model is ? direct leasing? , with a term of 3?5 years. It can also be taken as ? Sale and leaseback?

? Deep Involvement? refers to the way in which the financial leasing company directly invests in the PPP project as a social capital party, which is essentially an investment behavior, i.e., the financial leasing company, as a social capital or one of its parties, invests in the SPV company and participates in the whole process of the construction and operation of the PPP project, with the aim of obtaining a long-term and stable income.

3 Master the operation method

For example, when the government adopts the financial leasing mode, it should first set up an SPV company. Before the PPP project begins, the SPV company first signs the relevant contract with the social capital (e.g., the financial leasing company), at this time, the SPV company is equivalent to the lessee, and the social capital is equivalent to the lessor. According to the bundling characteristics of the PPP model, the project can be divided into two stages: construction and utilization. After signing the contract, it enters the construction phase, where the social capital goes to build the infrastructure. During the use phase of the infrastructure, the SPV company provides supportive services and is also responsible for maintaining the infrastructure, while the public *** department grants appropriate subsidies to the SPV company and pays the social capital a flat financial lease rent on a regular basis. When the lease period specified in the contract expires, the infrastructure is owned by the government department.

4 financial leasing company to guard against risk

PPP projects involve many departments, complex approval procedures, high degree of specialization; and mostly long-term contracts, large capital demand, payback cycle lasts for 20-30 years or even longer, any one of the links to the problem, will lead to prolongation of the period or even the termination of the project, the operation process at any time, will be faced with a large number of risks. Therefore, the financial leasing company intervenes in the PPP project, whether it is ? traditional intervention? or? In-depth intervention? The company's main goal is to provide the best possible service to its customers.

Differences between PPP project financing and corporate financing

When adopting the project financing model, the initiator of the project (generally the project investor or project sponsor) usually acts as the shareholder of the project company, and establishes a specialized project company for the investment and financing, development and construction, and operation and management of the project. as the main body, with the cash flow and all proceeds from the operation project itself as the source of debt service funds, and all assets of the project company as the main measure of credit enhancement (guarantee). According to the characteristics of the underlying assets of project financing, and in accordance with the division of recourse rights, there are two major categories of project financing: project financing without recourse and project financing with limited recourse. Usually, the difference between project financing and corporate financing is manifested in the following aspects:

(1) the financing subject is different. the financing subject of PPP project financing is the project company, and the lender or the capital provider is based on the asset status of the project company and the profitability of the project after completion and operation as a condition for providing financing. In conventional corporate finance, the main body of the financing is the project sponsor, and the capital provider or lender is more concerned about the subject's own creditworthiness, asset status, financial and security situation.

(2) different funding channels. Project finance is mainly used for infrastructure and other projects, usually large scale, long cycle, low returns, the need for diversification, more cost advantage and scale advantage of the funds involved. Internationally, the main channels include policy banks, commercial banks, government funds or subsidies, insurance companies, pension funds and investment funds. While conventional company financing, it can be based on the project needs, the company's financial situation and the actual capital market, the company can afford . The scale of funds and the cost of funds is more flexible and elasticity, so the company financing is more reflective of the advantages of full-market capital raising.

(3) recourse characteristics are different. The most basic feature of project financing is that, for the financing subject, usually shows limited recourse, or even no recourse. The lender has no recourse to the project sponsor's assets other than the project assets and related security assets or credit enhancement arrangements. In conventional corporate finance, on the other hand, full recourse is usually required, and once the financing entity is unable to repay the debt, the creditor can make up for it by way of disposal of the assets of the financing entity (the company), for example.

(4) different sources of repayment. The repayment of funds in project financing is based on the project's own earnings, with the project's own earnings and assets as the source of repayment. While in conventional corporate financing, the source of fund repayment is all the assets and business income of the financing body.

(5) guarantee structure is different. Project financing generally has a more complex legal guarantee structure system, in order to coordinate and balance the complex interests of various participants and stakeholders, reasonably share the risks and achieve their optimal goals. The traditional corporate finance, the guarantee structure is relatively single, the participants are relatively simple, for example, usually for the equity pledge, asset collateral, credit guarantee and so on.

(6) Perfect quality and safety management system. There have been no major production safety and quality accidents in the past three years, and the investors have a strong sense of proactive prevention, effective measures, and better compliance. Has an independent legal personality, can comply with the contract legal and compliant operation.

What are the characteristics of equity financing in PPP project financing

(1) long-term: the funds obtained by the company through equity financing have no expiration date, and thus are long-term, as long as the company exists, there is no need to return the money;

(2) irreversible: the funds obtained by the company's equity financing do not need to be returned to the investors, investors only through the sale of the company's equity to obtain the principal;

(3) no burden: equity financing does not require dividends every period, whether to make dividends, the time and amount of dividends can be based on the actual situation of the company.

What are the characteristics of bond financing in PPP project financing

The first characteristic of debt financing is that it has a term. Unlike equity financing, debt financing is divided into short-term, medium-term and long-term, and has a time limit, even the longest term debt financing is required to be returned according to the agreement. The second characteristic of debt financing is that it has a higher priority in liquidation than equity financing. Therefore, the funds obtained from debt financing can only be used as a supplement to the company's working capital, and the lender will consider the risk and control the amount of funds to be lent, so the company cannot rely on it completely to complete the investment of new projects. The third characteristic of debt financing is that it brings the company a leverage gain without affecting the control of the company, which is reflected in the balance sheet as a liability, but it will inhibit the company's investment impulse and increase the possibility of bankruptcy. The types of debt financing are bank credit, private lending, medium-sized bills, corporate bonds, trust financing, project financing, leasing and so on.

How to understand the concept of off-balance-sheet financing in PPP projects

The full name of off-balance-sheet financing is off-balance-sheet financing, which is often referred to as off-balance-sheet financing or off-book financing in reality. This type of financing is used in some PPP projects, particularly transportation projects that use certain one-off assets.

Operational leasing in PPP off-balance sheet financing

Operational leasing is the most widely used off-balance sheet financing, but it should be emphasized that financial leasing, which is also a form of leasing, is not considered off-balance sheet financing. The difference between an operating lease and a financial lease is that an operating lease is when a company needs to use an asset temporarily, to the outside world only to use the asset for the purpose of leasing behavior, the company does not want to own the asset, and financial leasing is often a professional leasing company to buy the asset, and then leased to the company's behavior, which is actually equivalent to the instalment payment of the asset sold to the company.

How to Understand Joint Venture in PPP Off-balance Sheet Financing

PPP projects are usually structured as a single project company, with fewer cases involving joint ventures. Joint venture refers to the behavior of a company that holds equity in other companies, but does not have a controlling interest or does not actually control the company. At this time, the investment is shown as foreign investment on the balance sheet, and the operating income is not shown on the income statement. However, some PPP projects may apply special purpose vehicle (SPV) at the structural level. An SPV is a company that initiates the formation of a new company for its own benefit, and which only serves to satisfy some of the interests of the initiating company. Such companies are often incorporated in some offshore locations such as Bermuda, British Virgin Islands, etc., and use very high gearing, with the promoter hidden behind the scenes but assuming all the risks.

How to Understand Asset Securitization in PPP Off-Balance Sheet Financing

Asset securitization reflects the process of placing an asset into circulation in the financial markets. Usually the assets need to have value or stable cash flow, and then through the issuance of the way in the financial market public sale, so that the assets to obtain liquidity.PPP projects can be in addition to their own equity or project income rights securitization, but also part of the receivables or part of the product (such as the wind power project of the right to carbon emissions) for securitization, so as to quickly obtain liquidity. However, in the process of implementation, it is necessary to pay attention to whether the behavior meets the local accounting standards and whether it needs to be included in the balance sheet. This approach is more common in the United States, where financial markets are well developed, and is now gaining popularity internationally. A PPP project financing case relevant to China in recent years is the securitization of Hong Kong Disneyland's assets, which sold its receivables from the government in the financial markets.