Under what conditions is bank lending for projects carried out? Loans for investment projects
Peculiarity project lending(funding)
- 11 project lending (financing) means financing of individual independent investment projects without additional attraction of funds from project participants - enterprises and organizations. Project lending arose and developed from such banking practice as lending with the condition of repayment of the loan with manufactured products: the loan was repaid after the implementation of the project at the expense of sales proceeds. Subsequently, the ego determined the main features of project lending, such as:
- object - a specific investment project, not production and economic activity or business transaction;
- source of loan repayment - income from the project, separated from financial activities project initiators;
- the possibility of combining various forms of credit: bank, commercial, state, international;
- project risks are shared among the participants;
- the bank can act as a project organizer, lender, investor, financial consultant;
- the transfer of borrowed funds for an independent project is carried out by a specially created company;
- the solvency and creditworthiness of investor organizations may not be taken into account.
When organizing project financing, the object of assessment is the investment project itself and its viability. An important point is also the ability to generate cash flows sufficient to repay the loan. The implementation of the project and the repayment of the loan largely depend on the effective interaction of investors, the bank and other project participants. In practice, banks carefully screen investors to find out how they are able to support the project. The effectiveness of the project is largely determined by the concerted actions of all participants. Therefore, for the bank, first of all, it is important to guarantee the commissioning of the loan facility, the timely start of its operation, obligations to provide everything necessary, guarantees for the supply of the necessary products by third parties. Experts identify five basic principles of project lending 1:
- viability of the project:
- participation in the project of experienced, strong, conscientious partners;
- accounting and distribution of all project risks;
- settlement of all legal aspects;
- developing specific and coordinated action plans and having a quality business plan.
Unlike traditional bank lending, project lending can involve suppliers and buyers of products, government bodies, pension funds and leasing companies... Therefore, with project lending, it becomes possible to use several sources of borrowed capital. When lending large investment projects, access to more profitable sources of credit, such as funds from international financial markets, budget funds, funds of international financial and credit organizations, can be obtained. Project lending allows you to raise capital in large volumes and with high financial leverage. This is especially important for small companies, for which access to large-scale and highly leveraged loans is practically closed.
Banking: management and technology: textbook, manual for universities / ed. L. M. Tavasieva. - M .: UNITY-DANA, 2001 .-- S. 667.
A significant advantage for the founders of an investment project is the possibility of obtaining a loan without reflecting this debt on its balance sheet, since it is included in the balance sheet of a special company. Therefore, the damage to the balance and indicators of payment ™ of the founder is inflicted less than when receiving a regular loan, since the ratio of equity and debt capital of the company - the founder of the project worsens.
Risk distribution plays a special role in project lending. From this point of view, the following types of project lending are distinguished:
- full recourse lending: the lender retains the right to full compensation for all obligations of the borrower. If the lender manages to retain the right of full recourse to the founder-initiator regarding all project obligations, then this actually means ordinary secured lending, which violates one of the principles of project lending;
- partial recourse lending: lenders have a limited right to transfer responsibility for repayment of the loan, which means the risk is shared among all project participants;
- non-recourse lending: lenders take on most of the risks and in fact bear full responsibility for the implementation of the project, which naturally leads to an increase in the cost of the loan.
To minimize risks in project lending, banks, as well as in traditional lending, require collateral. In project lending, possible forms of collateral are divided into two groups: collateral that can be quantify, and collateral, which, as a rule, cannot be estimated by a specific sum of money and which is sometimes impossible to separate from the company itself implementing the investment project. The second group of support usually includes information types of support:
- obtaining objective information about the competitive advantages known in marketing and pricing, acquired by the company during its work in the market, which are considered as a guarantee of future new achievements;
- information about the project itself: a feasibility study and conducted feasibility studies, the likelihood of timely implementation of the project, the quality and cost of future products;
- information about the project managers.
The bank, as a rule, does not perceive the lack of material security for an investment loan as an indisputable reason for refusing a loan, provided that bank employees have a good command of methods of analysis and evaluation of types of information support. In this regard, not every bank is capable of organizing project lending. In real practice, lenders, as well as initiators of an investment project, use various criteria for the feasibility of project lending, including technical and economic viability, profitability, and the presence of a common interest that unites all participants. If in the long term there is a general orientation of interests of all project participants and it is sufficiently stable, then the bank can participate in the project with its credit resources.
How to raise the necessary financial resources by means of securitization of assets?
The term “asset securitization” describes a financing technique based on the issue of valuable papers secured by asset-backed assets - ABS (.Asset-Backed Securities) - company or bank. For the first time this technique was applied in 1971 in the USA by the agency Freddie mac: it implemented the first innovative mortgage-backed securities program at the time - MBS (Mortgage-Backed Securities). The term itself did not exist at that time, but the program turned out to be very successful, as it contributed to the development of the secondary market for mortgage loans, provided the opportunity to increase the volume mortgage lending, which contributed to the development of the real estate market and better satisfaction of the needs of American citizens for housing.
The term "securitization" appeared in Wall street Journal in 1977 and was "invented" by Lewis Ranieri (Lewis S. Ranieri), the head of the mortgage department of the bank Solomon brothers who suggested that the term be used by the reporter Wall StreetJournal Ann Monroe (Ann Monroe) in an article describing the first issue of securities secured by a pledge of claims on mortgage loans.
There are various definitions of securitization, but the essence of this technology boils down to the fact that it allows you to transform assets into securities secured by cash receipts from the original assets. By selling such securities on stock market to a wide range of investors, companies receive a significant additional inflow of free cash, which can be used for both current and investment activities.
Securitization of assets is a rather complex and high-tech operation, which is carried out in several stages. Several entities participate in it, and various financial instruments are used. The main stages in structuring each specific transaction are:
- allocation of assets;
- creation of a special legal entity;
- introduction of mechanisms to improve the reliability of observing the interests of the parties;
- issue of securities;
- sale of securities to investors.
At the heart of the securitization transaction is an asset that generates regular and predictable cash flows. In this case, financial assets (i.e. monetary claims against third parties) can arise from both contracts financial nature(in the overwhelming majority of cases - credit agreements), and agreements in any other sector of the economy. To carry out the securitization of assets, a company must either be able to plan for the receipt of proceeds from already concluded contracts or, within the framework of the contract, have a certain schedule of payments that could subsequently be used as a schedule of payments to investors for ABS. As a rule, banks and some companies in the real sector have such certainty about future receipts. It should be borne in mind that for investors the object investment analysis it is not the credit quality of the company itself, but the reliability of its financial assets. Thus, the first necessary characteristic of securitized assets is their ability to generate a stream of payments with a known regularity. These can be assets that generate only interest payments (medium and long-term bank loans), or assets that generate capital payments (claims under lease agreements or trade agreements).
The second most important characteristic of securitized assets is the coordination of the urgency of receipt of payments and payments to investors on ABS. In this regard, when securitizing assets, it is necessary to take into account the life of assets and the frequency of cash flow using appropriate structuring mechanisms. Accordingly, the cash flows generated by the securitized assets should be well predictable.
The third essential characteristic of an asset subject to securitization is its legal separability from the originator. In practice, the assignment of a claim is often prohibited by an agreement between the debtor and the creditor. In addition, confidentiality clauses are often included in the contract, which create certain legal difficulties in securitization.
Another criterion for allocating a pool of assets is the minimum required volume. Since various actors are involved in the transaction and high transaction costs and expenses for ongoing supervision and management, according to most experts, it is economically feasible if the volume of assets exceeds $ 80-100 million. Therefore, specialized companies - storage conduits (refinancing organization) are often created for small companies and banks. At the first stage, for example, the bank sells its mortgage loans on the balance of your own branch in the conduit. With the accumulation of loans transferred various banks, in a volume sufficient to form a pool, conduit will issue securities.
Within the framework of traditional securitization, the originator forms a pool (this process is called "bundling") of homogeneous assets, consisting of debt obligations, approximately corresponding in quality, timing, risks and profitability. Such assets can be differentiated payment flows, for example, for banks: future flows on plastic cards and future receipts to correspondent accounts; various types of loans: mortgage, consumer, car loans; lease payments. For other securitization companies, i.e. almost any financial asset that generates regular cash flows, taking into account the previously considered characteristics, for example, export earnings, etc., lends itself to transformation into securities.
The next step is to sell this pool to the securities issuer. For this, a special investment company (Special Purpose Vehicle, SPV), which buys assets from the originating bank and issues securities ( ABS) secured by receipts on these assets. These can be bonds, certificates, notes. The result of this operation is the transfer of securitized assets to the balance sheet SPV as her only asset. The most important principle of traditional securitization, along with the principle of ensuring the actual transfer of assets (Tme Sale of Receivables) SPV, is the elimination of the risk of bankruptcy SPV, which is practically prohibited from engaging in all types of business and financial transactions and the actions of which are iodine tightly controlled.
An indispensable participant in the asset securitization operation is the rating agency, which, based on a thorough study of the characteristics of the pool of debt obligations and the financial stability of the participants, determines the rating of the issue of securities
The rating of the issue of securities also depends on the credit rating of the guarantors who provide credit support to securitization. Large banks, special Insurance companies... Credit support measures for asset securitization are very diverse. It can be an irrevocable letter of credit opened by the guarantor for the amount of possible losses in case of default on the issued obligations, as well as the creation reserve fund or a cash deposit made by the guarantor or originating bank.
The rating score is important in determining the selling price and yield of a security. It serves as a guide for potential investors. It is important to bear in mind, however, that institutional investors are generally not allowed to purchase securities below a certain rating.
A feature of securitization is that the issue of securities can be assigned a higher rating than the rating of the company carrying out the securitization, which makes it possible to attract cheaper long-term resources in comparison with direct borrowing.
The technical functions of accepting payments from borrowers, crediting them to trust accounts, levying foreclosure on collateral for default loans, collecting statistics and publishing reports are performed by a servicer - a special service company or the originating bank itself, which receives a commission for these operations. A reserve servicer can also participate in securitization, which is created in case the main servicing bank ceases or is unable to service the securitized assets.
The interests of investors are represented by a trustee ( trustee), which plays the role of an independent controller. The trust exercises control over the streams of receipts from the transferred receivables and the actions of all participants in the transaction. He has a power of attorney to dispose of incoming contributions and assets that are at zero; monitors; has the right to receive any information and the right to declare default on securities, and also sells collateral in the event of the issuer's insolvency.
Participation in the securitization of a trust ensures the implementation of another important principle - the presence of strict control of investors over the flow of receipts from the transferred receivables. However, in traditional securitization, investors mainly rely on the quality of the assets backing the securities and the strength of the legal structure of the issue.
Certain disadvantages of traditional securitization, such as the high cost of securing a genuine sale (True Sale) complicated
Securitization provides the necessary effect if the volume of assets pooled is at least $ 100 million.
ness tax accounting, the need for disclosure confidential information about the borrower, state registration assignment rights are overcome in the framework of synthetic securitization. With this type of securitization, the asset is not sold and remains on the company's balance sheet, but the risks of this asset are transferred to the market through the inclusion of credit derivatives in the structure of the transaction.
These asset risks are transferred SPV through the use of derivative securities discussed above - credit default swaps (CDS) or bonds that absorb credit risks - CLN (Credit Linked Notes).
SPV, usually produces so-called synthetic secured debentures - CDO (Collateral Debt Obligations). It is they who, after receiving the rating, are placed among the investors. With proceeds from the sale CDO a special company purchases highly liquid (government) securities. They are used as security for the fulfillment of obligations to the originator for the transferred credit risk and are transferred as collateral to the originator.
Upon the occurrence of an event stipulated in the contract CDS or CLN, government securities are sold to settle obligations to the originator, and the remaining amount is distributed among investors.
Asset securitization is an effective tool for financial management, expanding freedom of action, allowing you to overcome financial difficulties and avoid critical situations.
Due to the securitization of assets, companies can more successfully solve many management problems:
- diversify sources financial resources;
- reduce the cost of debt financing and attract resources for a long time;
- decrease debt burden pa balance sheet of the company;
- better manage the business structure and liquidity;
- minimize credit or default risk by transferring it to other participants;
- to raise investment attractiveness business.
At the same time, securitization also contains potential
danger, both for banks and companies, and for financial market generally. Thus, the banks' enthusiasm for securitization schemes led to a weakening of control over credit risks, to soften lending conditions, to reduce requirements for borrowers, which gave rise to the widespread use of so-called subprime loans (Subprime Lending).
In addition, the rapid development of asset securitization has led to a rapid increase in the volume of transactions with derivatives financial instruments, which contributed to the strengthening of the processes of virtualization of the economy, the separation of the financial sphere from the real sector of the economy, the emergence of deep imbalances both in the world and in national economies... The crisis that broke out in 2007 on the US mortgage market, which affected the countries of Western Europe and provoked an unprecedented financial and economic crisis in 2008, was, among other things, a consequence of the lack of the necessary responsibility on the part of all participants in the asset securitization process.
Russian banks and companies became interested in securitization back in the late 1990s. But the first attempt to carry out a full-fledged securitization of banking assets was made in August 2002 by Russian Standard Bank by issuing bonds backed by a portfolio of 50 thousand rubles. consumer loans... The issuer of three-year bonds totaling RUB 500 million. was presented by an independent company LLC "Russian Standard - Finance". However, some experts believed that despite the fact that this transaction was announced as the “Russian securitization debut”, its structure did not provide a clear separation of assets from the originator and did not protect the owners of securities in the event of bankruptcy, and none of the principles of traditional securitization was complied with. In 2004, OAO Gazprom completed the largest transaction in Russia to securitize future payments for gas exports. Until mid-2007 Russian banks and companies were actively exploring the securitization market, completing more than 20 transactions. The total volume of securitized assets in Russia reached almost $ 5 billion. In mid-2007, the structure of Russian ABS by type of security was: DPR (Diversified Payment Rights - diversified payment rights) - 35%, mortgage home loans- 22%, car loans - 21%, consumer loans- 10%, lease payments - 8%, credit cards- five% . Most of the securitizations were carried out by Russian banks and companies abroad, i.e. transactions were cross-border, with the asset pool being sold SPV, created outside Russian Federation... In Russia, two securitization transactions were carried out: in 2006, Sovfintrade securitized mortgage loans in the amount of 3 billion rubles. In 2007, the securitization of mortgage loans in Russia was carried out by the Agency for Mortgage housing loans(AHML).
World financial and economic crisis of 2008-2009 significantly undermined confidence in the technology of securitization of assets, since many participants in this process and, above all, the largest investment banks were unable to fulfill their obligations on the acquired credit derivatives. However, discrediting securitization as one of the important link in modern financial system happened not because this financial technology is, in principle, ineffective, but because the main participants and organizers could not or did not want to take into account the risks inherent in this mechanism.
However, Russian economy and Russian banks and companies are in dire need of the development of modern financial technologies, including the securitization of assets. The need to create broad opportunities for the securitization of financial assets as the most important task is stated in the "Strategy for the development of the financial market in the Russian Federation for the period up to 2020", approved by the Government of the Russian Federation in December 2008.
IN modern conditions In the world markets and in Russia, there is a gradual recovery of the asset securitization market, which is increasingly being used by Russian banks. Thus, in April 2011 Joint Stock Bank GPB-Ipoteka, part of the Gazprombank group, carried out a transaction to securitize mortgage assets, while the total volume of the issue was RUB 7,060 million. ; Bank Vozrozhdenie in December 2011 securitized its mortgage portfolio and placed mortgage bonds for 4.07 billion rubles. In mid-2012, VTB Group raised $ 275 million through the securitization of VTB-24's auto loan portfolio, Nomos-Bank announced the preparation of the securitization of the mortgage portfolio in the amount of 5 billion rubles. AHML in modern conditions is also making attempts to develop securitization. So far, this type of activity is limited only by guarantees to banks that independently prepare mortgage bond issues. Currently, four partners of AHML are planning a joint deal at the end of 2013 to securitize mortgage loans for total amount RUB 3 billion AHML is the organizer of the deal. Such a partnership, if successfully completed, will be the first on Russian market securitization of mortgages 1 In Western practice, when securitizing mortgage loans, MBS (.Mortgage Backed Securities) are issued: CMBS are provided by commercial mortgages, RMBS are residential.
In the Russian economic literature, two independent forms of banking investments are considered: investment lending and project financing.
Investment lending- this is the process of a bank providing a long-term loan for the implementation of a specific investment project under certain security in the form of property, valuables, guarantees, sureties.
Sources of repayment of liabilities for long-term investment loans for legal entities are their income and profits resulting from their financial and economic activities, including income generated by the project. Sources of repayment investment investments for individuals will be their income in the form wages and other legal income.
Investment lending has a number of distinguishing features from conventional loans.
First of all, and this has already been indicated, the term of the loan. In case of investment lending, it cannot be short-term, as a rule, long-term or medium-term.
Carrying out investment lending, highly qualified specialists of the bank conduct a more detailed analysis of the company's activities both in the current period and in the future. This analysis includes the characteristics of the demand for this product, the state of the sales market for the forecast period from taking into account the expected dynamics of market prices, exchange rate, interest rates.
Bank specialists find out not only the creditworthiness of the borrower at the date of the loan, but also his investment creditworthiness for the period of investment lending.
To clarify the comprehensive aspects of the enterprise, a wider range of documents is involved. As a rule, this is not only the balance for 2-3 years and the current financial statements, but also a feasibility study for an investment loan, a business plan for a project, an investment project form, an estimate of a construction project and a justification for its effectiveness, various approvals and permits, etc.
The assessment is also considered quite difficult. investment risk, taking into account many market and non-market factors that can reduce the efficiency of the investment project.
In the most general view under project financing it is understood lending, in which the repayment of the borrower's debt obligations is carried out by cash receipts from its sale.
Project financing implies greater involvement commercial bank in an investment project in the form of an investment loan, bank guarantees, project financing at its earliest stage. Very often the bank claims to share in project. Taking into account all the assumed risks, the bank, thus, will receive not only a percentage of the loan provided, but also a part of the company's profit. The return on investment is possible at the stage of project operation, mainly from the income received after the project is materialized. This is possible only if the manufactured products are competitive and find their buyer.
Experts point out certain differences between investment lending and project financing. Comparative characteristics investment lending and project financing are given in table. 8.1.
Table 8.1
Comparative characteristics of investment lending and project financing
Investment lending |
Project financing |
1. Participants |
|
Commercial Bank |
Commercial banks Investment banks Investment funds and companies Business entities Leasing companies |
2. Sources G |
Financing |
Bank loan Own funds of the borrower |
Bank loan Own funds of the borrower Bonded loans Equity financing Financial leasing Government financing |
3. Securing a loan |
|
Pledge of highly liquid assets of the borrower Guarantee Guarantee |
Design capacities Cash inflows as a result of project operation Property created in the course of investment activities |
4. The ratio of own and borrowed funds |
|
Own funds - 30% Borrowed funds - 70% |
Own funds - 50% Borrowed funds - 50% |
5. Control over the implementation of the project |
|
The commercial bank does not interfere with the project implementation |
The commercial bank is an active participant in the investment project |
6. Risk and return |
|
Low risks and reduced profitability |
High risks and comparatively higher profitability |
7. The authority making the final decision on lending |
|
Bank credit department and credit committee |
Bank credit department, credit committee, bank board |
8. Implementation of the project |
|
A project company is not created, the enterprise independently implements an investment project |
The investment project is carried out on the basis of the established project company. |
When assessing the possibility of providing an investment loan or project financing, the influence of the so-called stop factors is taken into account, which increase the risks and impede these investments. For example, the project being created is located in a region of increased political or economic instability; there is no transport and communication infrastructure during the construction of the facility; there is a shortage of personnel; project efficiency is problematic, etc.
All investment projects differ in their degree of risk: the least risky are projects carried out by government orders. Corporate community projects have a significantly higher degree of risk. But in practice, mixed forms of financing, the so-called public-private partnership, can also be used.
Sources of corporate project finance are own funds commercial company, depreciation deductions, retained earnings. If bank loans become the predominant source of financing, then such a project is financed under the terms of bank project financing.
In market conditions, joint project financing is used for the creation and construction of very large objects. This means that funds are allocated by several credit institutions... Joint project financing can be carried out in three forms: independent parallel financing, co-financing, blended project financing.
With independent parallel financing credit institution enters into a separate loan agreement with the borrower and provides loans for a specific part of the project.
Co-financing means the pooling of lenders into a single pool in the form of a consortium or syndicate, which concludes a single credit agreement with the borrower.
Blended project finance combines several types of financing: cash borrower, bank loan, commodity loan, leasing, borrowed funds in the market of loan capital, etc.
Financing of investment projects, as already mentioned, is always associated with certain risks, which is due to various external and internal factors. Therefore, the key issues are the distribution of risks between the project participants.
Risk allocation is carried out based on the degree of regression.
Non-recourse lending for the borrower's corporation assumes that the creditor bank assumes all the risk associated with the implementation of the project without any guarantees from the borrower. If successful, the creditor bank receives increased compensation in the form of high interest payments and a part of the profit of the established enterprise.
Lending with limited (partial) recourse rights means that each participant assumes a certain share of the risk. The parties interested in the implementation of the project assume specific commercial obligations. Typically, these commitments are distributed according to the stages of project and facility creation.
The essence of project financing with complete recourse to the borrower is that the borrower assumes all possible risks that may arise when creating a project. In this case, the risks for the bank are significantly reduced, especially if it comes on the state order, but do not disappear at all.
Project financing has its own organizational forms, which differ depending on the types of project financing, funding sources, subjects credit relations, forms of protecting the interests of all parties involved. Organizational forms of project financing are shown in table. 8.2.
Table 8.2
Organizational forms of project financing
Views project financing |
Sources of financing |
Subjects credit relations |
Forms of protection of interests |
Banking design financing |
Bank |
Acting company |
WITH certain degree regress |
Corporate design financing |
|
Design company |
Limited liability of participants in proportion to the share contributions |
Mixed design financing |
3. Bank loan 4. Public funds |
Design company |
Lenders:
|
The analysis of the applied organizational forms of project financing reveals their advantages, which are that they allow attracting significant resources for a potential project, providing good credit conditions, to receive guaranteed funds within the framework of joint activities, to distribute project risks between the participants.
A feature of project financing is that an independent entity- a design company. The founders of this company are not responsible for repayment of the loan, their task is to stage by stage the creation of an investment project. For this purpose, the project company has its own bank account, which receives the necessary funds from the founders.
To assess the economic efficiency of an investment project, many indicators are used. For example, to reduce risks and determine future profitability, you should calculate the financial strength of the project. The latter is determined based on the calculation of the debt coverage ratio, which is calculated as the ratio of the amount of expected net proceeds from the project to the planned payments for credit debt... This ratio should not be lower than 1. In world banking practice, the minimum value of the ratio is 1.3. Sberbank of Russia provides project financing and investment lending if this ratio is at least 1.5.
In addition to this indicator, the following are calculated: net present value, internal norm profitability of the project, return on investment index, payback period. At present, to simplify the system of calculating data and other indicators, programmers have developed many programs that the bank can choose at its discretion. It is also important to pay attention to the sensitivity of the project to external changes. This analysis allows you to determine the degree of influence of certain volatile market factors on the payback period of the project.
As already mentioned, investment lending and project financing are the most risky types of long-term lending. In this case, we are talking about a specific credit risk.
In turn, the likelihood of such a risk occurrence depends on a number of external and internal factors.
TO external factors include reasons of a macroeconomic nature, the occurrence of which is especially difficult to foresee. For example, world financial crises, dynamics of world prices for projected products and raw materials, inflationary processes within the country, increasing the cost of the project, tax and tariff changes, possible changes in the country's legislation, natural disasters, man-made disasters, etc.
Internal factors investment risks depend on the project participants themselves. This could be the risk of participants not doing 146
project of their obligations to finance the project, the risk of failure by suppliers and contractors to fulfill their obligations, the risk of delaying the construction of facilities, as well as the delivery of equipment. There are great risks associated with errors in the project, with defects during construction and installation works, the risk of illiterate management when making organizational and managerial decisions.
In addition, with investment projects, the purpose of which is the production of new products, there may be a marketing risk, the essence of which is in the incorrectly chosen marketing strategy. The marketing strategy concerns, first of all, pricing policy, sales markets, assessment of the infrastructure component of the project, etc.
With long-term and large-scale projects, administrative risks are not uncommon. The fact is that such projects are always accompanied by obtaining various permits and licenses from the supervisory authorities. The lack of certain permits and licenses may violate the construction time of the facility.
Investment lending and project financing, as we have already seen, have their advantages and disadvantages for both borrowers and banks. High risks are associated with the loss of part of the income for borrowers and puts them under the control of the bank. But it is quite possible that the investment project would not have been implemented without the participation of the bank.
Bank lending for investment projects
Lending to investment projects is not identical to long-term lending, although it also provides for a fairly long period of use of credit resources, in contrast to short-term loans suggesting
First of all, lending by banks to investment projects is characterized by the presence of a financed project, both new and existing, for the implementation or development of which the borrowed funds will be directed. In this case, the investing bank assumes certain risks that are associated with the implementation of the financed project. And the decision in favor of lending to such a project will depend on the planned income received from the project. Naturally, with a similar option in mandatory will be taken into account current situation according to the financial condition of the enterprise, the size of its profits, the dynamics of the growth of indicators, stability, creditworthiness, and the solvency of the enterprise. But the investment project itself will also play a rather significant role. When lending to investment projects, special attention is paid to the result predicted from the implementation of the project.
Lending to investment projects by the Bank "Russian Credit"
Bank " Russian Credit»Financing of investment projects providing for reconstruction, modernization, expansion of existing and creation of new production of enterprises, both large and medium-sized businesses.
The loan can be used for the following purposes:
Increase in production capacity;
- financing costs for overhaul technical re-equipment;
- acquisition of movable and immovable property;
- loan refinancing.
The amount of the loan limit can be more than RUB 100 million. Financing is carried out in the form of a loan / line of credit. Term of use credit funds can be up to 5 years old. The debt repayment schedule is drawn up by agreement of the parties. The loan rate is set individually for each borrower.
As collateral for a loan, the following can be pledged:
Land rights (property, long-term lease);
- real estate objects;
- property rights;
- shares / participation interests, incl. assets that are not related to the investment project;
- sureties of solvent companies;
- bank guarantees.
Bank lending to investment projects most often assumes that borrowers who: are legal entities registered in the Russian Federation or performing transactions or possessing assets in the Russian Federation will be able to take advantage of this opportunity; have a period of actual business operation - at least 2 years; have the necessary licenses and certificates.
Technology for lending by banks for investment projects
Effective lending of investment projects involves a different organization of the bank's work than simple lending. For example, many banks practice visiting a prospective borrower, even when considering the usual loan application... Thanks to this, the bank's specialists mainly get acquainted with the financial documentation of the enterprise. But, when considering the issue of lending for the implementation of investment projects, much more is often required, namely, we are talking about conducting a comprehensive survey of the enterprise in order to establish the level of riskiness of the issuance of funds. Such a survey of the enterprise is carried out in terms of the presence of possible risk factors.
When making long-term investment lending, you do not need to pin great hopes on a variety of standard types of loan repayment security. The most reliable security in the case when banks lend to investment projects is considered to be a fully developed investment project, as well as a high-quality business plan for its implementation. They reflect the actual state of the enterprise with all the existing risks and is even more reliable than the future state of the business, which they are aimed at achieving. A skilled analyst can learn a lot from such sources. The partial information provided in them, or its complete absence, can also testify to an experienced specialist about the actual situation at the enterprise.
With the development of the project method of doing business all over the world, it became necessary to introduce a fundamentally new mechanism for raising funds that would allow work to be carried out without initially having any cash collateral. Next, we will consider what project financing is and how it differs from other types of raising money in the public and corporate sectors.
Project finance concept
Project finance is a way to raise funds for long-term provision. It is also called an investment loan. A feature of the method is that the money is issued not under a state or corporate guarantee and not under the security of property, but under the cash flow that the project will generate after its completion. From the point of view of traditional lending, the current loan looks low-income and risky.
Not everyone succeeds in obtaining government guarantees, and obtaining a pledge against cash assets can be difficult due to their high degree of wear and, accordingly, low cost. In an investment loan, the main guarantees for lenders can be a license, development and use of special valuable assets, the right to use, production of products.
The practice of investment lending is already well developed in the world, however, it is still unusual for Russia. To lend funds to a promising but risky startup, most banking organizations will not risk it. However, when a team of well-known professionals is formed, and the initiative itself promises a good profit, then the chances of getting the necessary capital increase significantly.
Equity capital (direct investment), letters of credit, bank loans, leasing, and sometimes - commodity loans can act as financing instruments for an investment loan. Projects with potential high profitability, such as the construction of housing, industrial and commercial facilities, the establishment of the release of a new type of product in demand on the market, the re-profiling or modernization of the enterprise.
In order to obtain this kind of financing for the implementation of the idea, a project company must be created in the form of a separate legal entity. Money is allocated for the implementation of certain goals, cost items are clearly defined, and the borrower cannot change them at will. If with corporate financing all the risks fall on the organizing company, then with an investment loan the risks are divided between the initiator, the lending bank and the borrower.
In Russia, the full amount is very rarely allocated for the entire initiative, most often bankers require the borrower to invest part of his own funds, usually in the amount of 25-40% of the total amount.
At the same time, initial work (FEED, feasibility study, project documentation) is paid by the initiator of the plan, and the credit day is connected during the construction phase. After the end of the investment phase, the newly created assets are pledged to the bank against the received loan.
To reduce the likelihood of losses in such risky lending, banks conduct a detailed examination, draw up business plans, feasibility studies, financial models, and marketing research. This forces all parties to delve deeper into the specifics of the business, to understand the processes that take place in it. If we are talking about construction "from scratch" or modernization of an existing facility, then attention is drawn to the presence of the property or on a long-term lease land plot... In addition, the organization that will carry out construction and installation work is of great importance.
There are two main forms of allocation of funds for this type of provision of the initiative:
- Co-financing... Under it, all lenders are combined into a single pool (syndicate, consortium), and a single loan agreement is concluded with the borrower.
- Parallel independent funding... In this case, each banking organization provides money for its subproject (part of a common undertaking), concluding a separate loan agreement with the borrower.
An investment loan is sometimes referred to as "recourse financing", that is, requiring the loan to be repaid. There are three main forms of allocation of funds:
Unlike conventional lending, before making a decision on investment lending, the period for consideration of the submitted application is longer and can range from several months to one and a half years.
The specifics of working with an investment loan
Project financing is based on certain principles that apply to all such cases. The specificity is due to the high degree of risks for the parties, therefore, much attention is paid not only to the company that received the funds, but also to the idea proposed for implementation.
The project is highlighted separately from the main activity of the company, a legal entity is created through which all payments are made. This has its advantages and is necessary for a number of reasons:
- The concept implementation activity begins with a clean face. Bringing all manipulations into a separate structure avoids problems that may be associated with the activities of the main company in the past, for example, with inspections of fiscal services for previous periods, invalidation of individual contracts or legal claims in other areas.
- The project is becoming more open and transparent. All payments and planning of financial flows are well tracked, there is no intersection with others financial flows firms. Transparency increases the estimated value of an idea and fosters trust between multiple partners.
All possible risks are carefully investigated and activities are carried out to minimize them in order to attract an investor. This work is carried out at the pre-investment stage. After considering the potential hazards, each party assumes a portion of the risks that it is able to manage as effectively as possible, as well as control them. For example, risks can be distributed as follows:
- political to give to the involved state body;
- to impose technological on equipment suppliers;
- market-based transfer to buyers of products and their partners through the mechanism of specialized contracts.
The participants in the undertaking give each other functional guarantees in the form of "comfort letters" or by concluding a memorandum of understanding, preliminary agreements with buyers. The ideal option is to obtain government guarantees for preferential taxation or special conditions for a certain period, this is possible given the social significance of the initiative being implemented.
Financial models used for investment loans are very important for the stability of the implementation of the concept. Modeling is carried out using the creation of structured proforma reporting, which are integrated into the calculations of the balance sheet state of the project, its cash flows and the expected profit. International generally accepted financial reporting standards become a good help for this.
Building financial model is made on the basis of assumptions about the key factors affecting the business, made in the planning. For this, specialists must carefully study the features of entrepreneurial processes in the desired area and the relationship with key factors. The more accurately the expected activity of the object is modeled, there will be more reliable estimates of its cash flow, which is the basis of the loan.
High-quality management of the implemented initiative directly depends on the professionalism of our own or invited managers, their willingness and ability to properly organize communications between partners and participants in the undertaking, to coordinate their actions. The management must qualitatively adjust the issues of marketing, finance, logistics, information exchange.
It is often practiced to hire an experienced financial advisor who can provide support in analytical, legal and informational support of an idea. Most often, help is required when solving such problems:
- choosing the best project structure;
- preparation of a business plan, information and investment memorandums;
- organization of the necessary expertise (technological and engineering);
- search for investors and shareholders, organization of negotiations with them;
- measures to reduce costs and maximize the expected price of the object;
- development of ways of interaction between organizers and creditors, solving current financial and legal issues;
- regular preparation of progress reports;
- assistance in the development of control, management accounting and personnel management.
Project financing implies the allocation of funds for a long period, which is unusual for Russia, where "short money" is used more often. Rarely is the implementation of a large-scale initiative within 2-3 years, as a rule, the invested money will begin to return to the lender in 5-10 years. In this period, only preparatory work, economic calculations and preparation of a plan take a year and a half.
All these activities require considerable investments, which can amount to 10% of the total cost or even more, and they fall on the initiator of the idea. At the same time, investors do not always take these costs into account when drawing up an agreement and require 25-30% of their money to be invested in an undertaking in order to confirm the seriousness of their intentions.
Roles of participants in the process
As noted above, in contrast to the case of obtaining a traditional loan, an investment loan is possible only with the involvement of a wide range of participants who distribute risks. These include such organizations.
Financial institutions allocating funds. Usually large projects are ready for project loans. banking organizations having the ability to allocate money or other assets with a deferred maturity. Banks are trying to minimize the danger of losses by allocating funds not one-time, but in separate tranches according to the approved schedule. If something goes wrong, you can stop the provision of the project, avoiding big losses. There is also an opportunity to introduce your own controller into the project, who has the right to stop risky transactions.
Initiator. He is required to have management experience in the relevant area, since his area of responsibility is the operational part and sales performance indicators (KPI). Good name and credibility among product buyers is desirable. It is easier to get a loan for already well-known companies that have decided to expand their business. Bankers' requirements are more loyal to them than to individual clients who just want to start their own business.
Landowner. The practice is often used when the owner of a land plot transfers it to a landless initiator for management, receiving in return a share in the project. The cost of the site directly depends on the location, availability of automobile and railways, the availability of energy, the availability of a building permit.
Technical customer. Such specialized organizations are attracted by banks in cases where it is required to perform complex construction works to which do not apply standard variants... The technical customer carries out the whole range of works:
- engineering (surveys, approvals, design);
- supply of materials and equipment;
- construction (selection of a contractor, smr, commissioning).
Technical customer risks - on schedule and on budget. Overruns (price increases by subcontractors, unaccounted for work) he pays out of his own pocket.
Investor. As a rule, banks do not cover all the needs of the initiators, so an investor is required who will fully or partially cover all monetary issues for a share in the business being started. Investors are usually private individuals who do not expect to actively participate in the development of production later. Their interests are most often limited to the desire to profitably resell their share to large players in the market after increasing its value or to receive dividends ( passive income) from the use of the object for its intended purpose. When it comes to mining natural resources, then it is possible to use such a mechanism as a production sharing agreement.
Advantages and risks of investment lending
Project financing makes it possible to implement a new initiative without being tied to the previous long-term activities of a company or organization. At the same time, unlike many other undertakings, with such a provision, the applied management system is of great importance, which automatically makes the project much higher quality and predictable.
In many business plans, marketing and financial justification is put in the first place, overshadowing the issues of recruiting and training personnel, establishing a system of interaction, information and organizational support. When considering an application for an investment loan, all sides of the issue, without exception, are carefully studied in order to avoid losses, which there will be nothing to cover.
The main risks in project financing are as follows:
- a change in the political situation that can affect the key parameters of the idea;
- legal issues, in particular, obtaining the necessary permits and licenses;
- errors in economic calculations regarding the level of demand for products and their profitability, which will not allow covering all costs;
- rising prices for raw materials;
- missed deadlines for construction and commissioning of the facility;
- significant excess of the approved budget.
Russian conditions are not yet able to reliably protect business from external non-economic influence, therefore banking institutions they are very reluctant to give long-term loans without reliable confirmation of highly liquid collateral or government guarantees.
Investment lending is not identical to long-term loans, although it also presupposes a longer term for the use of credit resources, in contrast to short-term loans to replenish working capital.
First of all, investment lending is characterized by the presence of a financed project, new or existing, for the implementation or development of which the borrowing enterprise attracts credit resources. At the same time, the investing bank actually assumes part of the risks associated with the implementation of the financed project. And the result of the decision made in favor of lending to the project, respectively, depends on the income planned from the implementation of the project. Thus, the current financial condition enterprises, the amount of profit, dynamics of growth of indicators, stability, creditworthiness, solvency of the enterprise, but the investment project itself is also of no small importance. When lending to an investment project, special attention is paid to the predicted result, to the planned "exhaust" from the implementation of the project "to life".
At the same time, which is especially important for borrowers, the attraction of long-term resources does not reduce the limit on lending amounts to replenish working capital, that is, the borrowing company has the opportunity to separately finance investment and current goals.
Investment lending traditionally subdivided into direct investment lending, project financing and financing of construction projects. Each area deserves a separate consideration.
Investment lending involves the injection of long-term (long-term) money into an enterprise, which is closest to the concept of long-term lending. This direction is less risky, since the calculation takes into account the actual indicators of the enterprise for the analyzed period, the forecast indicators are built, including without taking into account the implementation of the project, since if the enterprise would continue to engage in current activities under the same circumstances and at the same time would pay the costs of investment loan. As a rule, re-equipment, renewal of fixed assets, purchase of additional equipment, expansion of a vehicle fleet or a fleet of equipment, purchase and launch of another similar line of equipment, purchase of another store and similar expansion of current activities are suitable for this direction. That is, the company continues to move in the usual direction, or, if it opens a new direction, then only if there is an opportunity to cover all the risks with the profit received from current activities.
Project financing This is the area of lending where the lending bank partially assumes the financing of the project, since it is supposed to finance the project that did not take place, and the calculation of the project's payback is based on the expected benefits from the project. Accordingly, the company intends to settle with the creditor bank on the loan at the expense of the income received from the project. Project financing includes new self-sustaining business lines of an existing enterprise, or the creation of a new enterprise, a new production. A creditor bank can even become a direct investor in an enterprise, that is, invest directly in its authorized capital if he expects to increase the company's cash flows in the future and, accordingly, receive a profit from his investments.
Financing of construction projects represents the provision of loans for the construction of residential, commercial and production facilities... As a rule, the bank finances a construction project in the presence of a ready-made package of the necessary initial permits for construction and installation work, approved design and estimate documentation, a registered land plot (long-term lease or ownership right). That is, the bank's financing is attracted at the investment stage of the project, when the preparatory stage of the project, design and other preparatory work, has already been carried out without the participation of the Bank. In this direction, the highest requirements are for the share of investments by the borrower in the implementation of the project of its own funds. When considering a project, the economic effect of the intended use of the areas under construction is calculated, whether they will be rented out or will be further implemented.
The main requirements of the bank to the borrower
Lending to investment projects presupposes a well-developed business plan, a feasibility study and, in fact, contracts (agreements, transactions) providing for the supply of the purchased property, the implementation of the necessary work.
Of course, the borrower, or in some cases the guarantor company, must have a stable financial position, be able to provide quality service and timely repay the loan provided.
The bank does not undertake the implementation, or rather the financing of the project, one hundred percent; it requires a mandatory share of the borrower's own funds, which ranges from twenty to fifty percent of the total cost of the project. At the same time, it is possible to set off investments already made by the borrower at the stage of project preparation, but the period for making such investments may be limited. For example, only the funds spent by the enterprise on the implementation of the project not earlier than in the last six months will be taken into account as own investments.
Investment lending, like other types of bank lending, requires collateral, that is, loans are provided against liquid collateral.
When considering a project, the experience of the project initiator in the implementation of similar projects is taken into account. This factor is not decisive, but it increases the likelihood of a positive decision by the bank to grant a loan.
Enterprises affiliated (interconnected) with the borrower are analyzed without fail.
Basic conditions for investment lending slightly different from short-term loans:
- willingness to invest their own funds in the project or to document the investments made;
- monthly repayment of interest (less often quarterly), but a slight delay in payments is also possible;
- loan term up to seven, in some cases up to ten years, especially if the borrower implements a project with state support... The payback period of the investment should not exceed the loan term;
- the debt repayment schedule is agreed with the borrower and directly depends on the parameters of the financed project;
- collateral is required;
- the loan is provided both in rubles and in foreign currency (if, for example, imported equipment is purchased abroad);
- various lending regimes are permissible depending on the specifics of the project;
- a loan can be provided for the purpose of financing previously incurred costs or refinancing existing debt to other credit institutions, attracted to finance investment costs.
Risks of hidden lending of investment projects from short-term sources
In the case of attracting short-term loans with the expectation of subsequent prolongation or "re-lending" (since "short" loans are easier to obtain, fewer documents are required, and so on) to finance long-term goals, the borrower runs the risk of not getting a loan on the same terms in the future, or, even more dangerous, to be denied the next loan.
If the objectives of the enterprise are consistent with the attracted investments, both in quality and in terms, the borrower receives a guaranteed invariability of the lending terms for the period of the project (provided that there are no force majeure circumstances). Also, the benefit for the borrower is to reduce the cost of registration of collateral (especially requiring registration) for long-term credit agreements compared to short-term ones, which require payment for registration of each encumbrance. In addition, with long-term investment lending, organizational costs, labor and time costs for collecting documents for processing and prolonging short-term loans are reduced.
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