Professional Documents
Culture Documents
Building Infrastructure
Key Idea
Projects with different risks
are likely to possess differing debt
capacities with each project,
therefore necessitating a separate
financial structure.
Core Concepts
Projects with
different risks
are likely to possess
Overview
Criteria for success
Historical perspective
Overview of structured financing
Obligations
Distribution by Size
8
$1 billion or more
$500-999 million
20
$400-500 million
11
24
$300-400 million
47
$200-300 million
34
$150-200 million
$100-150 million
71
$80-100 million
41
$60-80 million
50
95
$40-60 million
$20-40 million
under $20 million
284
0
50
100
150
200
250
300
Activities:
Project Financings Announced Jan. 1, 1981 through Dec. 31, 1995
Project Financings Announced Jan. 1, 1981 through Dec. 31, 1995
60
50
Oil & Gas Development
Cogeneration Power
40
30
20
Independent Power
Miscellaneous
10
0
Project
Financings
80%
60%
Smaller Corp
Fortune 500 Corp
Independent
40%
Solar
Geothermal
Hydro
0%
Cogeneration
20%
Communities of Interest
Cogeneration power production
example: Seadrift Plant
Host site
Utility company
Communities of Interest
Communities of interest in manufacturing
example: BevPak
Economies of scale
Full utilization of capacity
Independence
Communities of Interest
Mining, oil and gas
example: Hibernia Field
Pooled risks
Growth opportunities
New deposits
Transmission
Refining
Communities of Interest
Research and Development
example: NaTec, Ltd. (Partnership of CRS
Sirrine & Industrial Resources, Inc.)
Pooled expertise
Reduced free-rider problem
Costs
Geodesic Networks
Project financing
involves network of
participants
Community of interest
Often global
Non-hierarchical,
web-like structure
No central node
Long history
Historical Examples
11th Century English mine
Medieval trading networks
Construction contractors in ancient Rome
Future Possibilities
Renewable Fuels Power
Geothermal
Ocean Thermal Layers
By-product
is fresh water
Tidal
Hydrogen Conversion
Support Activities:
Technology Development
Human Resources
Development
Service
Distribution&
Marketing
Fabrication
Refining
Basic Extraction
Physical
Physical
Realm
Realm
Value
Value Added
Added at
at
Each
Each Step
Step
APPLY
PRESENT
DISTRIBUTE
SYNTHESIZE
SELECT
ORGANIZE
Infosphere
GATHER
Background:
Structured Financing
Structured Financing:
Obligations Match Cash Flows
Debt capacity fully utilized
Structured Financing:
Cash Flow Distribution
Early years:
3rd Hurdle
2nd Hurdle
1st Hurdle
Amount
Limited
Partners
Lenders
Political Risk
Expropriation
take
property outright
revise agreements
Blocked Funds
Exchange Risk
Lagged adjustments for inflation
Unrealistic official rates
Limits on removal of capital
regulations
exchange controls
Three-Stage Approach
subsidiarys
standpoint
parent company standpoint
add indirect benefits & costs
Questions
Is infrastructure provided?
Is there a viable community of interests?
How thoroughly are risks covered?
Is there profit potential for Southport
Minerals?
Which Approach?
Approach 1. Discount at Southport Minerals cost of
capital, ignoring the financial arrangements (zero
NPV)
Approach 2. Discount at a premium above Southport
Minerals cost of capital, ignoring the financial
arrangements (negative NPV)
Approach 3. Discount at Southport Indonesias cost of
capital, considering the financial arrangements
(expected NPV $58 million)
Approach 4. Discount dividends paid versus equity
invested at SIs cost of capital (expected NPV $10
million)
Outcome
Balance Sheet 1972-1987
Debt
Net Worth
$140
$ millions
$120
$100
$80
$60
$40
$20
1986
Debt
1987
1984
1985
1982
year
1983
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
$0
Outcome
Profit & Dividends 1972-1987
Profit
Dividend
$60
$40
$30
$20
$10
year
1987
1986
1985
1984
1983
1981
1982
1980
1979
1978
1976
1977
1975
1974
1973
$0
-$10
1972
$ millions
$50
Indonesia Today
Concurrence followed by Indonesia's national legislature, and the name East Timor
was provisionally adopted
On 20 May 2002, East Timor was internationally recognized as an independent
state.
Visit Website
http://www.fcx.com/