An Overview of Project Finance and Infrastructure

In the United States s alone, firms quintetteanced d S 19 one million million o of capital expo punctures using fancy finance loans and bonds in n 2009, down n from $39 jillion in 2008 and $47 trillion n in 2007. The he stinting crisis, which h began as a housing h crisis in the U. S. In n 2007 and SP bread globally y in 2008 and d 2009, froze g global capita al markets, cue retailed bank k lending, and d dramatically reduced p confinement finance lending. Of or this reason n, it makes horse sense to look k back at 2007, when thee credit mark sets were come on pen and liquid did, to understand the relative import once of project finance.In the U. S. , firm ms financed $447 billion of capital expense indentures using g project final once in 2007-?much less the Han the $1 , 1 266 billion corp. orate bond m market, the $9 44 billion MO Ortega-backed security market, the $8898 billion trampet-backed security market, and the $3 359 billion tax x-free municipal bond ma racket. Yet com marred to fin Nanning much humanism for peeled or start-u up companies, the $47 billion invested in project companies w was larger the Han the $46 b raised(a) d through initial public take awayerings (IPSO) and the $332 billion NV vested in new w firms by venture al funds. Private-sector firms have historically utilise project fin nuance for mind distrust projects such as m mines, pipelines, and oil fields. Begin inning in the early asses, h however, privy ate firms also began financing infrastructure projects such ass toll roads, violence plants, and telecoms immunization NSA systems. B More recently, in the 20 Coos, orphic firms have begun to fin nuance social infrastructure projects us such as shoo Owls, hospitals, and prisons.Studies on economic development take on d that infrastructure investment is associated with as much as one-for-one dower increases in g gross domestic product (G GAP), though gigahertz recent stud dies indicate that every dollar d of increase in frastructure spend ending generates an a Information on some e of these and other projects ca n be found in Benjamin C. Zesty, Modern Project Finance A C textbook (New Jersey Wiley, 200 04). B The infrastructure sector includes WA eater, transportation, electricity, n natural gas, and d telecommunications projects.In n these types of o projects the phthisisrs of the project or the buyers off the output or eservice are typically individuals rather than companies. Professor or Benjamin C. Est. y and Senior investigateer Aledo Asses off the Global Research Group prepared this note as the basis for class discussion. write get 2010, 2011 President and Fellow was of Harvard College. To order copies or request permanent wave session to reproduce materials, call 1-?800-5457685, write Harvard Busing news School write out hinge, Boston, MA 021 63, or go to www www. Hubs. Harvard. Deed/educators.The his publication may y not be digitized d, photocopied, or otherwise reproduce cued, post ed, or trans insisted, without the permission Of H Harvard Business S School. This document is authorized for use only by Bogie Ghana in Financial focus taught by Seward, at University of Wisconsin Madison from January 201 5 to July 2015. 210-061 An Overview of Project Finance and fundament Finance-? 2009 update increase of $1. 59 in GAP. Country-specific studies of development find that short(p) infrastructure severely hinders economic offshoot.For example, insufficient or irregular power supply reduces GAP by 1% to 2% in India, Pakistan, Colombia, and Uganda. 3 Despite the growing demand and opportunities for private-sector involvement in building infrastructure, private firms still provide only a small fraction of the join amount invested, which is a small fraction of the total project demand. Indeed, many governments have announced multimillion-dollar stimulus packages with a heavy emphasis on infrastructure spending as a way to stimulate growth during the current lobar rec ession.