What is project finance? It’s the most common question in the industry yet it’s difficult to answer because there is no universally accepted definition of project finance. Worse still, many widely used definitions of project financing aren’t in agreement. Because there are numerous elements of project finance common to all project financings, we look to those elements of project finance to provide context.
The listed elements of project financings
Project finance is off-balance-sheet financing. In project finance transactions, the project company that owns the project is a stand-alone company known as a special purpose entity. Because there are numerous participants and stakeholders in the project and ownership of the projected is a Special Purpose Entity, the ownership interest of the project sponsor or other project participant is a sufficiently minority subsidiary interest. As such the balance sheet of the project company is not consolidated onto the balance sheets of the project sponsors or shareholders.