Practical case studies euromoney books, 1996, lenders guide to the knowledgebased economy with richard d. The strategy of international project financing syllabus. Petrozuata pipeline and upgrader plant hydrocarbons technology. Kkk ompanies are increasingly using project increase equity returns. The hurdle rate should be higher for riskier projects and reflect the. Militello financial executives research foundation, 1995 and the empowered. Pdf project finance in theory and practice enrique. The case studies include several variations along the spectrum ranging from pure project finance to pure corporate finance. In contrast with previous work on the availability and.
How should pdvsa finance the development of the orinoco basin. Petrolera zueta, petrozuata c free download as powerpoint presentation. Petrozuata should use project finance because many of reasons for example project finance allows firms to isolate project risk, to increase equity return, to preserve debt capacity, to mitigate sovereign. The capital structure decision aswath damodaran stern school of business. Response to project proposal the big idea background this project is about coming up with a business idea for the big issue which is one of the largest social enterprises in australia, which helps in the solutions to homelessness in the community. Im not owner of the book, i am sharing in order to provide knowledge. Often bandied about in trade journals and industry conferences as a new financing technique, project finance is actually a. The wharton school project finance teaching note 3 there is no singular definition of project finance. To give students the opportunity to address questions like why use project finance, how to allocate project risk, and how to value project.
Crawford amacom books, 1996, foreign exchange risk management. In such cases the multinational entity sponsor seeks to transfer most of these risks to banks, export credit agencies ecas and multilateral agencies. May 07, 2015 this feature is not available right now. Companies are increasingly using project finance to fund large. For an overview of the project finance market including an analysis of funding sources, leverage, investment location, and industry, see b. Aswath damodaran 2 first principles n invest in projects that yield a return greater than the minimum acceptable hurdle rate.
Project finance, often used for capitalintensive facilities and utilities, is commonly used to segregate the credit risk of the project from that of its sponsors so. As a result higher leverage through project finance would be. Project finance create value by resolving agency problems and improving risk management. What are the costs and benefits of using project finance instead of the traditional debt finance as mr. According to a huge body of literature, we summarize the main difference between project financing and the traditional finance as followings. Describes what turned out to be an extremely wellcrafted financial transaction, one that was named deal of the year in 1997 by virtually every journal covering project finance. The wharton school project finance teaching note 2 i.
After describing the characteristics of pf, its historical origins and its unique benefits for empirical inquiry, i summarize the findings of academic research. Petrozuata pipeline and upgrader plant hydrocarbons. It takes place in 1997 as a project sponsor, conoco and pdvsa venezuelas nation. Using project financing pdvsa can get into a joint venture which can be. But five years after commercial operation the project was nationalized. A casebook provides a detailed description and analysis of project financed transactions. Project finance can be more costeffective than conventional direct financing when it permits a higher degree of leverage and the increase in leverage produces tax shield benefits, resulting in a lower overall cost of capital for the project. Project finance is the process of financing a specific economic unit that the sponsors create, in which creditors share much of the ventures business risk and funding is obtained strictly for the project itself. Many of these projects wereimplementedinhighriskenvironments,suchasthechadcameroonoilpipeline esty 2004a, or the petrozuata oil. Project financing benefits pdvsa can get into a joint venture with a. Project finance is a kind of financing that has a priority does not depend on the. New evidence on the importance of legal and financial systems abstract this paper analyzes how different legal and financial systems affect the composition of loan syndicates and how the composition, in turn, affects loan pricing. Project finance analysis in petrozuata case youtube.
Petrolera zuata, petrozuata c to convince the rating agencies of petrozuata as an excellent opportunity for the sponsors and potential lenders, the deal structure must effectively mitigate risks associated to whether the project is financed through project financing or debt financing. Petrozuata case analysis free download as word doc. First, it provides an overview of financing and revenuegenerating options used in. Cases are often relatively old so that you can see what went wrong and hopefully why things fell apart. Capstone project finance final project 9400 words bartleby. Other books describe what project finance is and how it worksbenjamin esty, of the harvard business school, brings his expertise to a collection of cases that analyze the challenges of structuring, valuing, and. Project and corporate finance the blending of project and corporate finance has become particularly helpful when lack of risk tolerance and market liquidity prevents projects from being financed on a pure non recourse basis. Petrozuata, venezuela project summary1 petrozuata is a venezueladomiciled joint venture between two large strongcredit oil companies. An introduction to project finance in emerging markets.
Petrozuata 2 petrozuata case analysis q1 how should pdvsa. After describing the characteristics of pf, its historical origins and its unique benefits for empirical inquiry, i summarize the findings of academic research from. The petrozuata project is a massive programme designed to fully exploit the oil deposits found in the orinoco belt of venezuela. Final report highway financing study submitted to government of the northwest territories. Petrozuata case analysis leverage finance cost of capital. Petrozuata is the first in a series of development projects aimed at reopening the. Petrozuata a case study of the effective use of project. Esty 1999 describes the petrozuata project, a heavycrude oil project in venezuela that provides a complementary example to dailami and hauswald 2001 and shows how international bond finance could be accessed despite complex legal, contractual, and political risks. High cost of political risk insurance would increase the interest rate associated with debt. Conoco, the houstonbased integrated petroleum company, through its subsidiary conoco orinoco.
Petrozuata 2 petrozuata case analysis q1 how should. The study approaches financing of the inuvik to tuktoyaktuk road and the mackenzie valley highway extension in two ways. The case is in 1997, the promoters of the project, conoco and pdvsa the na. Part 2 of the course will focus on the specific strategies that employ pf, and will examine cases which illustrate. For conoco, this project and the ability to finance a substantial portion of cash requirements for the petrozuata project with debtrepresented an opportunity to substantially increase its proven. Columbia university graduate school of business project finance in emerging markets b9301 carlos singer fall 1999 adjunct professor emerging market long term finance today is based on project finance structures which mitigate the extreme risk of. Definition of project finance the term project finance is used loosely by academics, bankers and journalists to describe a range of financing arrangements. Petrozuata oil project finance edward bodmer project. Png lng project financing usexim annual conference march 11, 2010. Project finance model key elements of the project finance cash flow model relationship between project contracts, finance documents and cash flow model creating the assumptions sensitivity analysis, dsra key financial model lender metrics dscr, llcr, plcr. The case is set in 1997 as the project sponsors, conoco and pdvsa venezuelas national oil company, are planning to meet with various development agencies and rating agencies regarding the proposed financial structure.
As a natural consequence of the technical, managerial and political risks involved. You are given petrozuata a case study of the effective use of project finance an assignment by your professor that you have to submit by tomorrow morning. For conoco, this projectand the ability to finance a substantial portion of cash requirements for the petrozuata project with debtrepresented an opportunity to substantially increase its proven. Bustillos said, pdvsa could have finance the debt internally p. The topic can be, for example, an analysis of a specific corporate finance transaction or an analysis andor. Each group should prepare a research project in a topic relevant to corporate financing you have until the last day of class 128 to turn in your research project. First, the analysis shows a typical setting where project finance is likely to create value, that of a large. Petrozuata a case study of the effective use of project finance. A casebook provides a detailed description and analysis of projectfinanced transactions.
Written as a guide to a dynamic, and increasingly important field, modern project finance. Case studies edward bodmer project and corporate finance. Petrozuata is a wonderful case because it was touted as such a successful case study in use of project finance to gain a low cost of capital and was supposedly structured so well to manage risk. We deem petrozuata as a project for it will be a totally standalone entity and the ability of repayment and financing risks are mainly associated with the entity. Project finance in emerging markets is widely used by multinational companies willing to limit their exposure to country, commercial and financing risks inherent to developing economies. The key questions are whether the project will achieve an investmentgrade rating and, if not, how to finance the project. Moodys assigns baa1 rating to petrozuata finance inc. There is limited capability in the nwt to finance the projects by issuing debt. Petrozuata oil project finance edward bodmer project and.
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