Project Finance

Project finance is a method for funding large-scale, capital-intensive projects (like infrastructure, energy, or industrial plants) through a legally independent Special Purpose Vehicle (SPV). The core principle is limited or non-recourse financing: lenders’ primary source of repayment is the project’s future cash flows, not the general credit of the project sponsors.

For corporate treasurers, this structure is key. It allows a company (the sponsor) to undertake a major project without burdening its own balance sheet with significant debt, thereby protecting its core credit rating and financial flexibility.

Key Risks and the Treasury’s Monitoring Role

The treasury function is critical in structuring and monitoring the risk allocation, which is extensively contractually managed.

Project Finance vs. Corporate Finance: A Treasury Comparison

For a treasurer, the choice between these models has significant implications:

Conclusion for Treasury

Project finance is a powerful tool for executing strategic, capital-intensive projects while managing risk exposure and protecting the sponsor’s core financial standing. The treasury’s role evolves from structuring and funding during development to active financial monitoring and control throughout the project’s life, ensuring the standalone vehicle meets its obligations to all stakeholders.