top project finance firms

top project finance firms

Top Project Finance Firms: A Comprehensive Analysis

1. Introduction to Project Finance

The advent of project finance can be better described as a series of critical advancements. These innovations, both legislative and market-oriented measures, aim at reducing the transaction costs of project finance, by way of creating standard agreements/documentations, encouraging a supportive and flexible regulatory environment, and developing a more convertible secondary market of project finance receivables. Despite these developments, project finance is still a complex and often tailor-made structure with respect to each funded project. The benefits of project finance cannot be afforded by the typical long-term lending, which is based on a balance sheet approach from the view of the bank. Project finance differs significantly from balance sheet lending and is particularly adapted to finance infrastructure and industrial projects.

Project finance is the most popular means for the development of infrastructure around the world. The structure of project finance, as opposed to the alternative sources of infrastructure project funding, carries the advantages inherent to the limited recourse lending: that is, better risk management and assignment of risk to the agent best able to control it. With limited recourse lending, the free cash flows from a project represent the project’s credit and the primary determinants of the project’s credit risk are the risks facing the cash flows. Long-term non-recourse lending and a broad set of financing products for infrastructure projects are at the heart of the effort to extend the roots of global capital markets.

2. Criteria for Evaluating Project Finance Firms

A framework for identifying and evaluating the specific qualitative standards associated with real options seems timely indeed given that the results from current academic research in project finance are not only scarce but also preliminary. Consequently, the goal of this paper is to comprehensively investigate the literature from a variety of related disciplines and build a complete list of current criteria that distinguish top project finance firms from average ones, develop a classification and order the streamlined criteria, and develop a framework for empirical test of these criteria. While highlighting the available tools and methodologies that can be used to empirically test Valuation Principles associated with real options above, within each of the criteria that are detailed below, we also describe the kinds of empirical evidence that is necessary for validation of a specific project finance firm’s characteristics.

Project finance sector has witnessed an exponential growth. The sector has instigated academic researchers’ and investment analysts’ interest in identifying key principles that have been associated with the successful development of a project. Researchers who specialize in investment management, real options valuation, project management, and real estate have developed a comprehensive list of qualitative principles which have been linked with global leaders in project finance industry. The purpose of this research is to apply these qualitative principles to create comprehensive evaluation criteria capable of distinguishing top project finance firms from average ones. Prior research in real estate, real options valuation, and project management specializations has been utilized to develop and organize our evaluation criteria. Final list of evaluation criteria has been obtained via application of accrual, deferral, and other accounting concepts. The identified project finance evaluation principles have been used to obtain a comparative cross-country, cross-firm perspective on the project finance.

3. Top Project Finance Firms Globally

Project finance is considered as one of the most complex yet crucial undertakings in the area of finance. Such projects are massive and require a colossal sum of money, thus a high degree of risk is always involved in this type of venture. However, the rewards are also high. There is now an array of project finance firms across the globe. However, a firm relevant in Peru might not be relevant in Sweden. This is because of a host of factors like risk, cost, and complexity of the projects. It is usual for some firms, with their local knowledge, to dominate the market. In this project, we start our investigation by finding out the top project finance firms globally. We look for law firms in the UMNTBSC Finance 750 list of 2004 who were listed without their other divisions. Out of a total of 80 such listings, 15% were connected with Project Finance. Using the number of listings as an arbitrary number for strength, a total of 10 firms made it in the top 5 including: Milbank Tweed Hadley & McCoy (9), Sullivan & Cromwell (8), Clifford Chance (7), White & Case (6), Freshfields Bruckhaus Deringer (6), Allen & Overy (5), Shearman & Sterling (5), Chadbourne & Parke (5), and Arnold & Porter (5).

4. Case Studies of Successful Project Finance Deals

Recent studies discuss case examples without supporting some kind of quantitative analysis with these examples. They do not apply a dual approach of assigning transactions both a multiple score and a ranking score. Therefore, their final decision is based on a subjective qualitative judgment. In order to combine the quantitative and qualitative analyses, we work with computational models that have been tested explicitly according to the real projects. According to the World Bank methodology, a transaction is regarded as a project finance one if it adheres to the “so-called rule of five,” which describes the typical characteristics of a syndicated bank portfolio project finance class. For the direct aim of paying off indebtedness, an SPV, as a complex legal entity, life cycle is adjusted to the revenue stream corresponding to the project.

Case studies of successful project finance deals: Project finance has had a dominant and crucial impact on infrastructure, construction, and energy markets since the 1970s. The main approach to studying project financing has been the case study/case analysis method. As part of its project finance group, the World Bank developed case studies of project finance transactions it financed between 1972 and 1988. Their review of the Bank’s cases verified these numbers (389 cases) by conducting in-house interviews with World Bank officials. The American Council of Engineering Companies, in collaboration with the American Consulting Engineers Council and F.W. Dodge, published a compilation from case studies conducted by Price Waterhouse.

5. Emerging Trends in the Project Finance Industry

TEL has witnessed a notable reduction in its size, from 340 global investment and commercial banks in the early 1990s, to a small set of specialized financial firms currently engaged in arranging its supported project financings. This presents a tangible market risk factor for sponsoring companies and addresses concerns related to the success level of many project financings, particularly those located in the developing regions. It is suspected that, in recent years, wedge-driven institutions and institutional frictions in project financing exert a compressing effect on the syndicated-term loan terms, and, according to another type of analysis, that are clustered at the project’s closing date even after controlling for information asymmetry.

It is clear that the project finance industry has evolved over the last few years, adapting to an ever-changing economic and financial environment. A better understanding of the various mechanisms and developments affecting this field is clearly helpful for all project stakeholders, but for potential project finance firms in particular, who rely on an extensive array of financial specialists. Transaction participants, as well, could benefit from a comprehensive analysis of the industry. The results of this study indicate success factors and leading firms on a global level, and in concentrated markets. This makes the process of selecting an advisor easier and less arbitrary. Based on our results, every transaction participant, but perhaps especially project values, can ensure smoother project implementation leading to a profitable enterprise.