Project financing is traditionally regarded as the financing of an asset where the lenders are repaid from the revenue generated by the asset and, once the assets are revenue positive, the lenders rely on the asset as their sole collateral for the loan.
Lenders will often require completion guarantees from the parent until construction of the project is complete and is cashflow positive. When the completion guarantee falls away, the lenders’ recourse should be limited to the project itself – that is, they cannot gain access to the other revenues or assets of the parent company.
In line with this, the conventional project finance structure involves the project being held in a subsidiary (a special purpose vehicle). This has the advantages of reducing the risks to the project (i.e. by removing any other business or liabilities of the corporate group which could affect it). It also allows the parent company to continue to undertake other business.
The typical project finance structure will often resemble the following.
The intermediate holding company is included in the above structure to avoid the need to involve the parent company in restrictive agreements with the lenders for the life of the project. It also ensures that there is no need for the parent to continue to grant share security in the project company.
If the project assets are currently held by the parent or in another group entity that also owns tenements or other assets related to the project, those assets can be transferred, or pushed-down, to the project company. Also assets unrelated to the project can be transferred to another group subsidiary. This is usually a straightforward process, which typically involves preparation of the following:
For Western Australian projects, a pushdown transaction like this is exempt from stamp duty, as there is no change in beneficial ownership of the assets. It’s usually advisable to obtain an exemption from stamp duty from the Office of State Revenue before implementing the transaction. The sale agreement (and tenement transfers) will be provided to the Office of State Revenue for endorsement as no duty payable, which will facilitate the registration of the tenement transfers.
Author: Trish Chapman, Director Wright Legal
Trish Chapman is a Director of Wright Legal and offers experience in all areas of banking and finance law. She advises on a range of financing transactions, share and business acquisitions, and corporate work. She acts for both borrowers and lenders on banking and finance transactions involving either Australian borrowers (with assets either in Australia or elsewhere) or foreign borrowers with assets in Australia. Her experience includes project finance for mining and resources, property and construction projects located either in Australia or international jurisdictions.
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Trish Chapman – Director, Wright Legal
T: +61 8 9327 0800
E: trish.chapman@wrightlegal.com.au