o'connor-project finance-syllabus-2015-summer

Syllabus – Project Finance

Course Project Finance Number/Section FINC 564-50

Semester/Year Module 5, 2015 Schedule Thursdays 6:30pm-9:20PM

Instructor Craig S. O’Connor

Phone (240) 997-5868 [email protected]

Hariri 240 Office Hours By appointment

Course Description:

Project finance is an approach that uses the cash flows generated by a new project to repay the debt

used to construct the project, and to provide a return to the equity investors in the project. Project finance

debt is typically borrowed on a non-recourse or limited-recourse basis in which the cash flows generated

by the project, and the assets of the project, serve as the collateral for the lenders. This approach enables

large projects to be financed that otherwise would be too large, or represent too much of a resource

allocation, for individual corporations and host governments.

This course provides a presentation of the current state of project finance, and the use of the project

finance approach to finance energy and infrastructure projects. A special focus of the course will be on

the use of project finance to support projects in emerging markets given the applicability of this approach

to provide the financing necessary to meet the needs for investment in infrastructure.

Since the early 1990's, the project finance mechanism has facilitated an unprecedented increase in

private-sector participation in infrastructure projects in emerging markets. This course will present a

number of recent case studies that illustrate the use of project finance techniques in the context of

emerging market conditions.

Learning Goals:

Provide a comprehensive examination of the current global “best practices” in project finance

Understand the techniques, resources, and institutions used to finance projects, and mitigate

political, commercial, and contractual risk in project finance.

Pre-requisite Coursework:

FINC 551 or FINC 557; MBA students only

Required materials

Gatti, Stefano, Project Finance in Theory and Practice: Designing, Structuring, and Financing

Private and Public Projects Second Edition

[Course Title], Revised 7.13.12

Publisher: Academic Press (2013) ISBN: 978-0-12-391946-5

Case Studies:

University of Hong Kong Case Study: Infrastructure Finance: The Sydney Cross City Tunnel This case explores the development of the Sydney Cross City Tunnel, an innovative infrastructure project developed by the New South Wales government in Australia in conjunction with Cheung Kong Infrastructure investors. The case will explore risk allocation and mitigation in typical road infrastructure projects developed under build-own-operate-transfer arrangements.

Harvard Business School Case Study: Mexico City Water ShortageThe case will explore the issues related to public-private partnerships in large municipal infrastructure projects. As urbanization continues to expand in emerging markets (China alone has plans to move 250 million from rural to urban areas by 2025), major cities will have major investment needs to create new infrastructure and upgrade existing infrastructure to meet the needs of the growing populations. The greater Mexico City area is home to 19 million people, making it the third largest city in the world. Mexico City faces a major challenge of water supply. Substantial sums are needed for investment in water supply and water treatment. This case will examine how to structure a public-private partnership model that can attract private-sector investment. Further this case will explore how the project finance approach can be used to provide financing and mitigate risks.

Harvard Business School Case Study : Tottenham Hotspur Football Club Tottenham Hotspur Football Club is a publicly-owned professional soccer team based in London, England. The club's chairman, Daniel Levy, is contemplating a significant investment in physical assets, including the development of a new stadium as well as the acquisition of a new player. The team must decide if the expected cash flows associated with adding the stadium, the player, or both, warrant the considerable required investments in these assets

Harvard Business School Case Study: Financing the Mozal Project – The IFC in MozambiqueThis case will analyze the how the IFC structured financing for the $1.4 billion Mozal project in Mozambique, an aluminum smelting project that stands as the IFC’s largest ever investment. This case will highlight the contributions of multilateral development institutions in general, and the World Bank Group’s International Finance Corporation in particular, in financing infrastructure projects in emerging markets. This case presents an extreme example of political risk in a developing country, and shows how the project sponsors attempt to mitigate the risks through project selection, structuring, and insurance.

Harvard Business School Case Study: Quezon Independent Power Project This case will illustrate a the role of export credit agencies in providing limited-recourse project finance, as well as a highlight a number of the major issues involved in the case including regulatory change, dealing with energy tariff adjustments, negotiating with foreign government ministries, financing of independent project finance (“IPPs”), and creating conditions to attract foreign investment via IPPs

Harvard Business School Case Study: Financing the Theun-Hinboun Hydroelectric Project This case highlights how a public-private venture emerges in one of the world's poorest countries (Laos) and how it obtained $280 million in financing for a 215 MW hydroelectric facility to supply power to Thailand. The case will highlight the role of export credit agencies in providing much of the debt financing that enabled this project to move forward.

Harvard Kennedy School Case Study: EDM (Energie du Mali)This case will examine the strengths and weaknesses of different forms of private participation including concessions, leases, and management contracts as mechanisms to attract investment in infrastructure in Sub-Saharan Africa. In the spring of 2005, the government of Mali was negotiating major changes in the concession of Energie du Mali (EDM), the private firm that operated Mali's electricity and water services. The negotiations were being watched anxiously by the World Bank and the French bilateral aid agency, who had been promoting private participation as a mechanism for improving performance and increasing investment in infrastructure. This case is designed to illustrate the difficulties of reforming state-owned enterprises in small and poor countries like many of those in sub-Saharan Africa.


Harvard Business School Case Study: Islamic Finance and the Kuwait Equate ProjectThis case explores the use of Islamic financing for a non-recourse project financing of the $2 billion Equate Petrochemical petro-chemical plant in Kuwait, a joint venture between Union Carbide Corp. and Petrochemical Industries Co. (PIC).This case will illustrate how Islamic finance mechanisms can be used in project finance. The case describes the primary instruments used by Islamic investors and challenges the participants to develop a financing plan that is consistent with Sharia's prohibition against the payment of interest (riba) while at the same time developing a financial structure appropriate for a large, long-term capital project that also integrates conventional Western financial instruments in a single transaction.

Recommended reading (but not mandatory)

Scott L. Hoffman, “The Law and Business of International Project Finance” 3rd Edition

Publisher: Cambridge University Press (2008) ISBN 978-0-521-70878-4 paperback

Academic Integrity

All students are responsible for adhering to the guidelines outlined in the MSB MBA Academic Integrity

System (https://intranet.msb.edu/mba/docs/Academic%20Integrity%208.09.pdf). Violations of the system

will be reported to the Academic Integrity board for review.

Grading Framework:

Team Case Presentations

Teams will be formed to present their findings for one of the assigned written cases, while the students

individually will prepare written answers to 3 additional cases of their choice.

The course will provide a comprehensive examination of the current global “best practices” in project

finance. To accomplish its objectives, the course will use Harvard Business School, and other business

school cases, that will serve to illustrate and bring to life the subject areas covered in the lectures. The cases

selected will highlight the major issues in project finance. Questions for the written cases will be posted to

Blackboard during the Course.

Grading

The four components of the grade are combined as follows:

Team Case and Presentation 25%

Three individual written case analyses 25%

Final Examination 50%

The final examination will be focused on the major subject issues covered in the lectures.


Course Schedule:

Class Date Topics Covered Required Reading/Assignments Due

1 May 21 Course Introduction

Global Trends in Project Finance Chapter 1

2 May 28Project Finance – The Lenders’ Perspective Chapter 2

3 June 4Project Finance – The Investors’

Perspective Chapter 3

University of Hong Kong Case Study:

Infrastructure Finance: The Sydney

Cross City Tunnel

Harvard Business School Case Study :

Tottenham Hotspur Football Club

Case Questions

4 June 11Guest Lecture: Ben Parry, Director –

Solar Power Project Finance, AES Chapter 6

Harvard Business School Case Study:

Financing the Mozal Project – The IFC in

Mozambique Case Questions

5 June 18Project Finance - Multilateral

Development Banks Chapter 7


Quezon IPP - Building Infrastructure in

Emerging Markets


Mexico City Water Shortage


Financing the Theun-Hinboun

Hydroelectric Project

Case Questions

6 June 25

Emerging Sector: Islamic Finance in

Project Finance


Islamic Finance & the Kuwait Equate

Project

Harvard Kennedy School Case Study:

EDM (Energie du Mali)

Case Questions


o'connor-project finance-syllabus-2015-summer

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