Division of International Studies

International Christian University

 

Readings in International Economy and International Management:

Project Finance

 

Autumn 2003

 

 

Instructor: Nobuya Takezawa                                             Office:　ERB II 225

                                                                                    Tel.: 3183

Class Hours: Thursday , 5th, 6th periods                    e-mail: takezawa@icu.ac.jp

 

Office Hours: Thurs. 11:40-12:50

 

 

This is an introduction to project finance.  Project finance is gaining wide acceptance as a means of raising funds to finance projects around the world.  The course will cover cases of projects in developed economies as well as large scale infrastructure projects in developing countries.  The first half of the course will cover the basics of financial analysis and planning in a project financing context.  The second half of the course will be devoted to cases.

 

The course is largely case driven.  This places a substantial amount of responsibility on the participants in the class. In other words, the more you put into the class, the more you can expect to learn from the class.  This course is not recommend for those interested in a passive learning environment. You are expected to do a substantial amount of reading and preparation before coming to class.  Active but constructive class participation is encouraged.

 

Prerequisites: 1) Fundamentals of International Management (IS) or equivalent required.  2) International Corporate Finance (IS) or equivalent strongly recommended.

 

 

 

Evaluation

Evaluation is based on three parts:

 

1) Case Presentations (35%) [group] Each group is to present a case　(could change depending on number of registered students).  Time allotted to presentation is approximately 30-40 minutes.  The remainder of the session will be used for class discussion and wrap-up.  

 

 

2) Short Exam (25%) [individual] Short closed book/note exam held on Session 4.

 

 

3) Class Participation (40%). Active (but constructive) participation in class discussion, etc.  You are especially  expected to participate in discussions involving cases.

 

 

Honor Code

With regard to case presentations and summaries, please do not consult with people outside of the class (friends at other universities, working in industry, etc.).  I encourage you to discuss the material with other members of the class, but each group must submit slides of their own analysis.  The examination is to be taken individually.

 

 

 

Required Text:

 

Selected HBS, Darden cases, and cases in Finnerty (1996). 

 

Notes to be distributed.

 

 

Recommended Texts:

 

John D. Finnerty. Project Financing: Asset Based Financial Engineering, Wiley,1996.

 

E. R. Yescombe, Principles of Project Finance, Academic Press, 2002

 

 

Other Resources and References:

 

HBS Project Finance Portal: http://www.hbs.edu/projfinportal/

 

Project Finance Magazine: http://www.projectfinancemagazine.com/

 

In Japanese:

『PFIとプロジェクトファイナンス』東洋経済新報社2000

 

『PFIビジネス』日本能率協会マネジメントセンター2001

 

 

Course Outline/Reading

 

 

Session 1: Project Finance: An Overview  

Brief discussion of history and rationale for project finance.  Identify and discuss various risks associated with project finance. 

 

Cases: An Overview of the Project Finance Market (HBS Note), Indiantown Cogeneration Project (Finnerty)

 

 

Session 2: Financial Analysis I: Discounted Cash Flows and Coverage Ratios

Review of discounted cash flows, WACC, etc.  Discussion of financial coverage ratios used in project finance.  

 

Case: Indiantown Cogeneration Project (Finnerty)

 

 

Session 3: Financial Analysis II: Country Risk and Credit Ratings

 

 

Session 4: Real Options and Project Valuation

 

 

Session 5: Case (presentations)

Case: Euro-Disney Case (Darden)

Summarize the set of transactions and structure of the project.  What do each of the stakeholders have to gain (lose) in this project? Assess the S.G. Warburg valuation.

 

 

Session 6: Case (presentations)

Case: Euro-Tunnel Case (Finnerty)

Highlight the major risks faced by the project.  How is the project structured to manage such risks?  Summarize the debt and equity financing structure of the project.

 

 

Session 7: Case (presentations)

Case: Petrozuata C.A. (HBS)

Identify the risks the project faces. How are the risks addressed (project structure)? Is the project feasible (NPV>0)?  Should the project bonds be given an investment grade rating.

 

 

Session 8: Case (presentations)

Case: Financing the Mozal Project (HBS)

What risks does the project face?  How are these risks mitigated?  Would you invest in this project?

 

 

 

Session  9: Case (presentations)

Case:  Chad-Cameroon Petroleum Development and Pipeline Project (HBS)

How are sponsors financing the deal? What is the role of the World Bank/IFC in this deal?  Can you provide an analysis of the risks and returns to the various parties involved?