Financing for seaport projects around the world are currently seeking new opportunities, using advanced technology and financial models to improve their efficiency and competitiveness.
Private companies and governments must work together to develop maritime trade in a globalized world.
In recent years, the concept of financing a seaport has undergone profound changes, driven by the growing costs of building, maintaining ports and terminals against the backdrop of rapid progress and growing competition.
Shipping companies are no longer able to include multimillion-dollar infrastructure spending in their financial plans, so the industry needs fresh solutions.
The public sector plays an important role in the construction, expansion and modernization of seaports and port infrastructure, interacting with terminal operators and other players to ensure efficient financing of investment projects.
As a result, we see more and more complex financial models based on long-term bank loans, grants, guarantees, bonds and other instruments.
The variety of ways of financing the construction and development of seaport projects varies widely, ranging from full self-financing to the widespread use of external sources of financing in the form of bank lending and various project finance (PF) instruments.
CP Finance UK Finance offers financing for seaport projects in Europe, USA, Canada, Latin America, China, Russia, South and East Asia, Australia, the Middle East and other regions.
Together with respected financial partners, we guarantee a comprehensive customized approach to each investment project.
We offer loans of 50 million euros or more with a maturity of up to 20 years.
We also use combined project finance (PF) instruments to implement large projects without risking the originator’s assets.
The so-called project finance has been around since the end of the 13th century, but it only became widespread after the 1930s, when banks and other financial institutions began providing unsecured long-term loans for oil and gas projects or other projects with significant growth prospects.
The PF mechanism has improved over the years, and financial institutions have significantly improved loan collateral and investment project due diligence to improve the security of financing.
This has had a positive impact on funding requirements and the availability of borrowed funds, which is why the beginning of the 21st century was the heyday of the era of project finance.
Today, this method of financing is increasingly used for capital-intensive investment projects with long payback periods, such as the construction and modernization of seaports, cargo terminals, port infrastructure, etc. The nature of project finance is close to the nature of infrastructure projects, therefore
Project finance instruments are considered the most suitable means for financing for seaport projects and the construction of such facility.
PF tools provide a lot of advantages for participants in the process, allowing them to quickly implement capital-intensive projects with minimal risk.
Inherent characteristics of project finance include ensuring that the project has sufficient financial flows that provide a realistic opportunity to service the debt according to the payment schedule.
The financial indicators of the investment project deserve special attention, since the project company incurs significant costs:
• Obtaining expert opinions.
• Preparation of technical and financial documentation.
• Protection of participants from investment risk.
Financing a seaport project, especially when compared to other financing methods, requires an integrated risk management process along with mechanisms to protect the project from potential increases in risks in certain situations.
Such additional costs contribute to a significant increase in the cost of financing (transaction costs can be estimated at 10-30% of the total investment costs).
The effectiveness of project finance is highly dependent on the estimated cost of the project. The higher the cost, the greater the chances of getting a positive effect as a result of using PF. For this reason, project finance is only applicable for the construction of large seaports and terminals.
The advantages of using project finance instruments for the construction and modernization of the port (port infrastructure) are due to the special organizational structure associated with the special purpose vehicle, SPV / SPE.
Below is a typical structure of an investment project carried out with direct participation or control by the state (this is most relevant to the construction of seaports and other strategic infrastructure). In practice, each project is unique, and some PF participants may play several roles at once. For example, one company can be a project shareholder and a lender.
A special purpose vehicle (SPV / SPE) is a key link in organizing financing for large off-balance projects.
SPV provides reliable organizational, financial and legal isolation of the project from the assets of its initiators.
After achieving the goal of the project, which is the construction of port infrastructure and the purchase of new equipment, a special project company must pay off the debts, after which it can cease to exist. The organizational form of an SPV may differ from project to project.
Factors influencing the choice of the structure of the project company:
• The number of project initiators and their goals.
• Legal regulations of the host country as well as the country of SPV registration.
• Method of project financing and access to funding sources.
• Financial health of initiators and other participants.
As a rule, the best solution is to create a joint stock company, but in some justified cases, other forms may be more profitable.
The advantage of joint stock companies is the significant limitation of recourse to shareholders. In addition, joint stock companies provide a more transparent ownership structure that protects against the influence of one project participant on the activities of the SPV. On the other hand, other types of companies may be more beneficial when it comes to tax matters or the obligation to disclose business information.
Regardless of the chosen form of SPV, financing the construction of seaports through a special project company gives initiators a number of advantages by separating their core activities from the risks and debts of a new capital-intensive project.
These benefits include the following:
• Connection of financing with future cash flows, regardless of the current financial condition of the project participants.
• Access to large sources of borrowed funds, which the company cannot obtain on its own in the case of traditional financing.
• Limiting the impact of the project on the financial position of the initiating companies.
• High percentage of borrowed funds, reaching 90% of investment costs.
• Rational division of project risks between the participants.
• Increased creditor confidence in the project due to its rational and transparent structure.
• Protection of the project from illegal decisions or actions of any of the participants.
• Separation of obligations to publish information about the project from obligations to publish commercial information about its initiators, which helps to keep commercial secrets.
• Tax incentives, investment incentives, etc.
Finally, project finance in the context of the construction of seaports and terminals is intended to organize close cooperation of many participants, which makes it possible to make optimal use of the knowledge and experience of each of them.
These advantages justify the use of SPV for project implementation.
However, it should be emphasized that the additional costs, organizational and legal issues associated with such a project structure can be so complex that the use of project finance will be impractical for small projects.
If you need professional advice on the project finance, please contact our consultants.
In general, financing of seaport projects covers two main aspects.
First, it is the definition of the investment project financing structure (consisting mainly of loans with limited recourse to borrowers and a set of other financial instruments that ensure a continuous and sufficient financing process).
Secondly, these are the sources of servicing loans in the form of cash flows received as a result of the operation of the port infrastructure.
The moment of commencement of repayment of loans taken for the implementation of a specific project begins with the commissioning of the seaport or part of it, and any funds received must be directed to repayment of the debt.
The basic principle of project finance is to isolate project assets, contracts and cash flows from the activities and assets of sponsors (so-called off-balance sheet financing).
On the one hand, linking financing to future cash flows from seaport activities increases the risk for lenders. On the other hand, it is a powerful incentive for participants to carry out the investment process in such a way as to achieve the planned cash flows on time.
The huge investment needs for port infrastructure around the world are the basis for the further development of project finance models.
The high cost of infrastructure projects requires debt financing, so the PF market, despite the very high risk, will continue to develop.
CP Finance UK Finance is ready to assist its clients in arranging project financing, including large loans on favorable terms, financial modeling services, preparation of a professional business plan, establishment and management of SPV / SPE, approvals and consulting services.
If you are interested in the construction of seaports or you need long-term financing for large infrastructure projects, contact a representative of CP Finance UK.
Our company is ready to organize financing of large projects, advise your specialists and provide other services.
CP Finance UK Finance professional services include the following:
• Financing of projects of seaports and port infrastructure.
• Services in the field of financial modeling and investment engineering.
• Operation and management of facilities.
• Project management, etc.
CP Finance UK with our high net worth angel investors foreign provides financing, construction and modernization of the port infrastructure under the EPC contract.
Contact our official representatives to find out more.
CP Finance UK FINANCE LIMITED
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