Analysis of a major project Please write the correct. take a project from GGC or

Question

Analysis of a major project

Please write the correct. take a project from GGC or UAE and write on the following topic

Analyze a mega project along the following framework .You can choose one of the large projects implemented in GCC region or other geographical region

1. How the project is structured – What are the requirements in terms of security design agreements .

2. Discuss the sources of financing for the project

3. How the valuation of the project was done –Analyze using cash flow and investment appraisal system.

4. What are the major risks involved .Discuss both macro economic and commercial risks involved in project

Explanation / Answer

Origins of Project Financing With the explosion of project financing in the late 1980s and 1990s, both in Europe and around the rest of the world, there is a temptation to think that the financing of projects on limited or non-recourse terms is a relatively novel concept, and one for which the ingenious lawyers and bankers of the 1980s can take most of the credit. This is, however, far from being true. Indeed, there is early evidence of project financing techniques being actively used during Roman times and earlier still. According to the historians, sea voyages on the Mediterranean ocean were extremely dangerous adventures in Greek and Roman times, mostly on account of the dual perils of storms and pirates. As a result of these nautical perils, some risk adverse merchants would take out a fenus nauticum (sea loan) with a local lender in order to share with that lender the risk of a particular voyage. The fenus nauticum worked on the basis that the loan was advanced to the merchant for the purpose of purchasing goods on the outward voyage, which loan would be repayable out of the proceeds of the sale of these goods

            There is no universally accepted definition of project finance. A typical definition of project financing might be: “The financing of the development or exploitation of a right, natural resource or other asset where the bulk of the financing is to be provided by way of debt and is to be repaid principally out of the assets being financed and their revenues.” Other more sophisticated definitions are used for special purposes; set out at Fig. 1 is an example of a definition used in a corporate bond issue. This illustrates the aims of the bondholders, on the one hand, to exclude from the definition any borrowings having a recourse element (since the purpose of the definition was to exclude project finance borrowings from the bond’s cross-default and negative pledge) whilst, on the other hand, the aim of the issuer to catch as wide a range of project-related borrowings.

·        When the Authority evaluates a bidder’s proposal, it must be able to assess whether the proposed PPP contract is bankable and whether the proposed financing is deliverable in light of the market conditions and practices prevalent at the time. Awarding the PPP contract to a company that ends up being unable to finance the project is a waste of time and resources.

·        The allocation of risks in the PPP contract can affect the feasibility of different financing packages and the overall cost of the financing.

·        The financing can have an impact on the long-term robustness of the PPP arrangement. For example, the higher the debt-to-equity ratio, the more likely it is that in bad times the PPP Company will run the risk of a loan default, possibly terminating the project. Conversely, the more debt in a project, the more lenders are incentivised to ensure that project problems are addressed in order to protect their investment.

·        If the PPP includes State guarantees or public grants, the Authority will play a direct role in some part of the financing package.

·        The amounts and details of the financing can directly affect contingent obligations of the Authority (e.g. the payments the public sector would have to make if the PPP contract were terminated for various reasons).

The larger 500 Portuguese non-financial companies through a survey. The survey was designed to gather information on the use of several capital investment appraisal methods. Moreover, it also permits to evaluate the influence of several variables on such use. A translated version of the questionnaire is presented in appendix. The first group of questions permits to identify the drivers of the use of capital investment appraisal methods (e.g. environmental uncertainty, firm’s strategy) and also to define control variables (e.g. size, industry). The second group of questions is on the use of several capital investment appraisal techniques. These questions allow us to produce compounded variables that represent the level of sophistication and completeness of CIAM in practice. Factor analysis can be used to produce these underlying variables. The third group of variables is devoted to capture the level of effectiveness and resistance to change associated to the use of CIAM. The majority of the questions were measured using a five-point Likert scale. Likert scales are particularly useful to measure the level of use of each technique. The data was collected through an electronic questionnaire. The use of electronic questionnaires (e-quests)

Capital investment appraisal methods

Capital investment appraisal literature is based on the assumption that the objective of a firm’s manager is to maximise firm value, that is, the wealth of its shareholders. Therefore, capital investment appraisal and cost of capital estimation are major decisions that the financial manager has to make. In this process, it is crucial that management use accurate methods that will result in the maximization of shareholder wealth (Ryan and Ryan, 2002). In fact, managers should undertake capital investment projects only if they add to the value of the firm, which means that managers should identify and undertake all projects that add value to the company so as to maximize shareholder value (Gilbert, 2005)

The role and contribution of the Construction Industry are pivotal and the primary conduits for infrastructure development and maintenance. In construction industries and the various project stages, one of the silent day to day realities are risks and uncertainties. And construction industry is inherently risky and uncertain and these arise from the nature of the industry itself. These are faced due to evolving and emerging conditions through project lifecycles and project environmental circumstances. They are generally due to physical, economic, social and political circumstances inter alia with resources available and the project characteristics at hand.

Identification of the various risks and uncertainties that the project faces.

• Categorization and Quantification of risks and uncertainties that the project faces.

• Risk and uncertainty sensitivity analysis for the project.

• Project risks and uncertainties allocation and distributions to those with better capacity and mechanism to handle each categorisation. This may include the traditional allocation to God/gods through prayers or by ignoring the risks and uncertainties. Sometimes, some people handle it in superstitious manners either through fortune-tellers or witchdoctors or traditions for example sacrifices of some kind for certain type of projects. Risks and uncertainties allocation and distribution should be done through terms and conditions of contracts.

• Project risks and uncertainties response and mitigation by the responsible people or parties to whom they were allocated and distributed. So that when the threats occur partially or wholly, the project implementation is protected from their consequences or compensated for the consequences.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.