Hi everybody. The topic today is project finance. We will start by answering the basic question, what is project finance? Then we will look at the key players in a standard project finance transaction, Try to understand what are the eligible assets for a typical project finance financing. What is the risk management that one has to implement in a project finance transaction? And finally, what is the market size? So what is project finance? Well, project finance is a way to raise funds to finance a particular project. This funding can be in the form of equity or debt. But in project finance the funding is essentially debt. And this debt is a non-recourse debt or at best a limited recourse debt. Three providers of funds can be identified in a typical project finance transaction. Senior debtors, who have the seniority in the payments of the interest rates and the capital, then junior debt which is subordinated to the senior debt. And finally, shareholders who provided the fund through equities. The payment to these fund providers comes exclusively from the cash flows generated by the project. Hence, debt is a non-recourse debt. Debtors cannot use the cash of other projects to finance the debt in case the project failed to generate enough cash flows. The cash flow water fall is as follows, from the cash generated by the project, we first pay senior debtors, then junior, and finally equity holders. The project is financed from the pre-construction period to the operational period. As a consequence, the changing nature of the risk through these phases in the life of the project may allow the company to change the terms of the contract. In particular, the company can issue new debt in case more funding is needed, or some guarantees which are no longer relevant can be just dropped from the loan contract. So who are the key players in a project finance transaction? Now, first of all, the sponsor. It is the entity which initiate the transaction, because there is a project it wants to implement. The sponsor will create a Special Purpose Vehicle, which is a legal entity which will be completely dedicated to the management of this particular project. It is an ad hoc entity with no previous life, just created for the purpose of managing this project. What are the advantages for the sponsor? Well, the advantages are multiple. Among them we can cite avoiding contamination of existing projects by the current project. And vice versa, avoiding continuation of the current project by existing projects. Overcoming covenants from existing debt of the sponsor. And finally, it is an off balance sheet transaction which does not affect the capital structure of the sponsor. Unfortunately there are also disadvantages for the sponsor. Among them, the cost of debt, which is in general higher than usual debt financing. This high cost goes to the lenders, and therefore the advantage for the lender is, among other things, the high return from the debt. And the easiness of apprehending the particular project. What are the eligible assets for project finance? Eligible assets have to be very large sized project, intensive in physical capital, and most importantly, will leave a long time period. These projects have to be run independently because they will be run through the Special Purpose Vehicle. And they need to generate high operating margins because all the fund providers will be paid out of the cash flows generated by the project. What are the sectors where we encounter project finance transaction? Well this could be real estate for buildings, it could be also infrastructure to build some highways. It could be some power plants, ports and airports, and finally natural resources extraction. All these projects, all these sectors are very intensive in physical capital and they last for long time periods. Project finance is a loan in fine as a loan there are some risks associated with this loan. The risk can be either during the pre-construction or the operational phase of the project. They could also be extra risks associated with the operations associated with the project, like for example, currency risk, interest rate risk, and also, political risk. So the usual suspect is, of course, the force majeure, a natural catastrophe, an extreme weather event. It could be also a management failure, of course, and because it takes time for the construction and the launching of the project, the competition can be performing. And therefore, the service the project was supposed to provide can already become obsolete. And this is an important source of risk. There are other risks which are typical in project finance, like for example, a delay in the construction. An underestimation of the true cost of the project, and finally, some external shock. Like, for example, a political shock. How can these risks be managed? First of all, a correct design of contracts, be it insurance contract whenever the risk can be insured. The managerial contract to align the interests of the managers and of the company. And finally, to pick up the correct suppliers to avoid any delay in the future. To manage the risk of the project, debtors will look in deep two important ratios. The first ratio is gearing, which is the fraction of the project which is financed by debt. The higher is this fraction, the riskier it is from the debt holder perspective. Another important ratio is the annual debt service coverage ratio, which is the ratio of the debt service and the cash flow generated by the project. The lower is the debt service relative to cash flow, the better it is for the debtor. Other ratio is the loan life coverage ratio, which is the ratio of the cash flow generated during the life of the loan, and all relative to the cash flows of the loan during its whole life. And finally, we have the project life coverage ratio. Which is the ratio of the whole cash flow generated by the project, divided by the cash flows needed during the life of the loan. These ratios are very important for the debtors. It allows them to assess how important is the debt service relative to the cash flow generation by the project. Another way for debtors to reduce the risks is to impose the creation of a debt service reserve account. Which is an account whereby any extra cash flow, after all the debt has been serviced, it will be put into this account. And therefore this account will serve as a buffer in case there are some shocks to the cash flow in the future. Finally, debtors or even the sponsor can provide some credit enhancements techniques. Like for example, syndication to spread up the risk among more debtors. Some guarantees, either by the sponsor or by a third party, or credit derivatives whenever the risk can be hedged with these credit derivatives. How big is this market? Well I said before, it is a market for very big project, so we have a small number of deals with a huge volume of transaction. If we look at power plants and transportation sectors, they concentrate 60% of the project from project finance transactions worldwide. And these two sectors also concentrate on large fractions of the deals. The power plant sector concentrates 46 deals out of close to 200 deals all over the sectors. So what is the take away? The take away is that the project finance requires the creation of a Special Purpose Vehicle. All the transactions related to project finance will be through this Special Purpose Vehicle. It has numerous advantages, both for the sponsor but also for the lenders. Thank you very much.