Investment activity

Investor — an individual or a legal person who places his funds in assets, mainly in securities.

11

PROJECT FINANCE

Project finance is a type of investment projects credited by banks or other financial institutions. Payment obligations of the borrower are mainly covered at the expense of cash revenues received from the im­plementation of the.investment project. Assets related to the invest­ment project can serve as an additional provision.

Credit is usually given to the special office established at the im­plementation of the investment project - project company. Estab­lishment of the project company is stipulated by the fact that getting project credit is stated in the balance of the project company itself but not in the balance of the company which established this project com­pany.

Performing usual credit operations a bank pays much attention to the credit history of the borrower, assessment of his financial and economic situation including assessment of the property used as a col­lateral. In case of project finance a prior attention is given to the pro­ject analysis. The object of the project analysis is project documenta­tion, the aim of the project analysis is to determine financial and eco­nomic efficiency of the investment project, to define more precisely expenditures (estimate cost) of the investment project, sources of fi­nancing, to assess risk, etc. The main directions of the project analysis are considered the following: technical, organizational, juridical, eco­logical, commercial, economic, financial. While assessing financial ef­ficiency of the project much attention is paid to the calculation of Net Present Value - NPV, Internal rate of Return - IRR, Return on In­vestment - ROI.

Performing assessment of risks related to the investment project performance is considered significant. Taking into consideration high risks of the project finance creditors intend to provide the most effi­cient management of risks connected with the implementation of the project. There are several ways of risks reduction: insurance, distribu­tion between participants of the investment project, others.

1. 
   What is project finance?
   
2. 
   What is the role of the project company?
   
3. 
   What is the main aim of the project analysis?
   
4. 
   What is NPV?
   
5. 
   What is IRR?
   
6. 
   What ways of risks reduction do you know?