MAIN SOURCES OF EQUITY AND DEBT FOR PROJECTS
MAIN SOURCES OF EQUITY AND DEBT FOR PROJECTS
The main sources of equity and debt can be divided into two groups of lenders and sponsors.
Group 1 – commercial lenders, include:
1. Banks;
2. Institutional lenders;
3. Commercial finance companies;
4. Leasing companies;
5. Individuals;
6. Investment management companies;
7. Money market funds.
Groups 2 – commercial sponsors, include:
1. Companies requiring the product or service;
2. Companies supplying products or raw materials to the project;
3. International agencies;
4. Government export financing agencies, and national interest lenders;
5. Host government;
6. Contractors;
7. Trade creditors;
8. Vendor financing equipment.
We now look at the sources in detail:
1. The World Bank and area development banks
These provide debt or a mixture of debt and equity.
Advantages
1. The loans tend to be for longer terms than might otherwise be available.
2. Possibly offered at fixed interest rates.
3. Interest rates tend to be lower than would otherwise be possible.
4. Participation of the World Bank endorses the credit for other potential lenders.
Disadvantages
1. A lengthy approval process, which may delay the project for months or years.
2. The funds provided may be in currencies difficult to hedge and create significant currency risks.
2. Government export financing and national interest lenders
This is generally available from two sources or a combination of both:
- From Export and Import banks (EXIM banks)
- Foreign aid which comes into two forms:
1. from the private sector of the country where government is providing aid.
2. Sources from the recipient of the purchases of goods and services.
Types of finance extended by government export financing and national interest lenders include:
1. Loans and guarantees.
2. Supplier credit - a loan is made to the supplier and the supplier quotes financing terms to the purchaser. Usually requires the supplier to assume some portion of the risk of
The main sources of equity and debt can be divided into two groups of lenders and sponsors.
Group 1 – commercial lenders, include:
1. Banks;
2. Institutional lenders;
3. Commercial finance companies;
4. Leasing companies;
5. Individuals;
6. Investment management companies;
7. Money market funds.
Groups 2 – commercial sponsors, include:
1. Companies requiring the product or service;
2. Companies supplying products or raw materials to the project;
3. International agencies;
4. Government export financing agencies, and national interest lenders;
5. Host government;
6. Contractors;
7. Trade creditors;
8. Vendor financing equipment.
We now look at the sources in detail:
1. The World Bank and area development banks
These provide debt or a mixture of debt and equity.
Advantages
1. The loans tend to be for longer terms than might otherwise be available.
2. Possibly offered at fixed interest rates.
3. Interest rates tend to be lower than would otherwise be possible.
4. Participation of the World Bank endorses the credit for other potential lenders.
Disadvantages
1. A lengthy approval process, which may delay the project for months or years.
2. The funds provided may be in currencies difficult to hedge and create significant currency risks.
2. Government export financing and national interest lenders
This is generally available from two sources or a combination of both:
- From Export and Import banks (EXIM banks)
- Foreign aid which comes into two forms:
1. from the private sector of the country where government is providing aid.
2. Sources from the recipient of the purchases of goods and services.
Types of finance extended by government export financing and national interest lenders include:
1. Loans and guarantees.
2. Supplier credit - a loan is made to the supplier and the supplier quotes financing terms to the purchaser. Usually requires the supplier to assume some portion of the risk of