CA Julfesh Shah CA Avinash Ghundiyal
Finance is said to be life blood of any business organisation and project finance is a long-term financing of any business venture including infrastructure, commercial and industrial projects based upon the projected cash flows of the project rather than appraising the financial statements of its stake holders and sponsors, said CA Julfesh Shah while addressing a webinar on ‘Essentials of Project Finance’ organised by Dhule & Nandurbar Chapters of WIRC.
CA Shah further clarified that organisations require long-term finance to meet basic objectives, to set up, modernize and expand business activity, to acquire fixed assets for facilitating productive endeavor and require short term finance to meet the day-to-day working capital requirements i.e. operating cycle.
A portion of current assets is to be met through long-term sources for having long term stability, liquidity etc. in the event of exigencies. Project finance is a process of evaluating and selecting long term investments that are consistent with the goal of shareholders (owners) which is wealth maximization.
He further said that due to the complexity and uniqueness involved, a capital project needs to be launched after analyzing past environment, studying existing environment and forecasting future environment. Proper presentation and detailed analysis is necessary for seeking any type of financial assistance from financial institutions.
A detailed and descriptive project report is prepared. Important points that are necessarily to be incorporated in the project report are nature of projects, general information, information about promoters, technical details of the project, marketing and selling arrangement, financial feasibility, economic benefits.
CA Shah further said, “We need to determine the nature of project whether it is a new / green field project, expansion / modernization of existing facilities at the same or different location, forward /backward integration, cost reduction project, diversification, debt restructuring schemes), other technical details, like capacity, available working days/shifts, manufacturing process, raw materials, power requirement, ect. The key to any project finance is to use a right mix of debt and equity. There are a number of issues highlighted which need to be considered for the purpose of financing of the project. Besides, it is important that due care is taken in drafting the documents concerning the financing of the project. The companies should adopt the project financing structures so that the objective of shareholder’s wealth maximisation can be achieved.
As the world is heading towards a global integrated market and as the demand for private capital in infrastructure assets is increasing, project finance will continue to play an important role in both developed and developing markets, concluded CA Shah.
CA Avinash Ghundiyal, Chairman made welcome remarks and CA Santosh Nankani, Convenor, introduced the speaker and proposed the vote of thanks.