Project finance shifts the focus from sponsors’ balance sheets to the project’s cashflows. For developers in Nigeria, well-structured finance can unlock large projects without overloading owners’ balance sheets.
1. The core idea — cashflows as security
- Lenders look at projected project cashflows and risk mitigations, not just sponsor credit.
- Projects need a reliable revenue stream—pre-sales, offtake or user fees.
2. Typical project finance structure
- Equity (sponsor), mezzanine/subordinated financing, and senior debt.
- Contractors, offtakers and insurers are all part of the risk stack.
3. Key risks and mitigations
- Construction risk: fixed-price contracts, performance bonds, and strong contractor selection.
- Market risk: pre-sales, offtake agreements, or tariff structures that protect revenue.
- FX risk: match foreign currency debt with foreign currency revenue where possible.
4. Documents lenders want
- Feasibility study, financial model, procurement contracts, environmental/social assessments, and a clear security package.
- A robust repayment schedule and cash waterfall showing priority of payments.
5. Practical financing tools
- Construction loans, take-out finance, and export-credit support where available.
- Using pre-sales and escrow accounts to reassure lenders.
