International Financing
Bancroft Partners offers:
• Investment financing from €50 million and more
• Minimizing the contribution of the project promoter
• Investment loan term of up to 20 years
• Loan guarantees
✓ Project finance and investment consulting from Bancroft Partners:
• From €50 million and more.
• Investments up to 90% of the project cost.
• Loan term from 10 to 20 years.
To consider financing your project, please e-mail us the completed application form.
International financing services of investment projects and trade transactions is becoming an increasingly important factor in business development.
Since the end of the twentieth century, the world economy has been developing under the influence of globalization, which establishes modern rules for building an interconnected, deeply integrated world. International finance is closely related to the cross-border flows of goods, raw materials, labor, financial resources and information, which initiate radical changes in all national economies.
The implementation of numerous international investment projects around the world is accompanied by the rapid development of markets and an increase in the share of exports in the gross domestic product of developed countries.
In 2018, global exports reached $ 19.45 trillion (an increase of 9.4% over 2011), while global imports increased to $ 19.77 trillion.
The globalization of key sectors with the strengthening of international value chains has become the basis for the global economic growth on the verge of the coronavirus crisis.
The architecture of the world economy has changed significantly in recent years thanks to the liberalization of foreign trade, the development of the international financial market and the fragmentation of international production. Multinational corporations are now becoming the driving force behind economic development, and international project financing has become a common practice for big business.
According to UNCTAD reports, in 2018 the number of multinational corporations in the world exceeded 82 thousand, and their number has increased almost 12 times over the past 30 years and continues to grow.
The top 500 largest multinational corporations currently control half of the world’s industrial production, and their profits often exceed the budgets of developed countries.
International financing of investment projects, including advanced project finance tools, takes an increasing share in such industries as energy, chemical industry, mechanical engineering, electronics, oil and gas projects and many others.
Bancroft Partners offers a wide range of advanced instruments for international financing of large projects, including investment loans, project finance (PF), corporatization, financial leasing and much more. The geography of our services covers almost the whole world, including the European Union, the USA, Latin America, Russia and the CIS, North Africa, the Middle East, as well as South Asia, East Asia and China.
Fully realizing the importance of implementing international investment projects for modern business, our financial team is actively working to improve analytical tools and develop new financing models.
We are ready to provide long-term loans for businesses from 50 million euros with a maturity of up to 20 years.
Bancroft Partners also offers a full range of services related to the organization of project finance, including the establishment and management of SPV / SPE.
Instruments for international financing of investment projects
Any company that implements large investment projects must have reliable access to funding sources.
Multinational corporations and companies operating overseas are no exception.
Sources of international financing for investment projects fall into two broad categories. Equity financing consists in obtaining financing through an increase in capital, that is, the issue of new shares. Debt financing means attracting borrowed funds through banks, financial institutions, investors, etc.
Multinational corporations or companies operating overseas, as opposed to companies operating only in the local or domestic market, tend to have a significant need for resources. In most cases, this need cannot be fully satisfied in the domestic market during the implementation of large capital-intensive projects. For this reason, companies strive to diversify funding sources and raise funds both domestically and internationally. International financing instruments for financing long-term investment projects are briefly discussed in this section.
The use of debt financing for international investment projects, such as the renewal of existing assets and the purchase of foreign companies, is widespread in many areas.
The effective use of debt instruments offers significant benefits to companies operating outside the country of origin.
The cost of debt financing may be lower compared to alternative sources. In addition, the interest paid on the loan is not taxed. Attracting affordable sources of debt financing for business development abroad helps to increase the return on equity.
According to the Alliance for Financial Inclusion (AFI), paying off debt forces managers to be more disciplined, which contributes to the overall efficiency of managing specific business projects.
However, the most common way to increase the capital of a multinational corporation is the issue and placement of shares on international markets. The characteristics of this source are described below.
Issue and placement of shares in foreign markets
Companies can issue shares in the country of origin in local currency or place their shares on international markets.
Companies are considering the possibility of an international issue of shares, mainly in order to obtain additional funds in the same currency in which they need to finance commercial operations or the implementation of investment projects abroad. The successful use of this instrument is highly dependent on factors such as the company’s international image and liquidity guarantees for international investors.
The issue and placement of shares on foreign markets is divided into four main categories:
• Internationally underwritten domestic offers. These are registered offers, usually aimed at domestic investors with a significant number of foreign participants.
• Dual tranche offers. Most of the shares go to the domestic market of the issuing company through a public offering, and the rest goes to foreign markets through a private placement.
• Multi-jurisdictional offers. These are offers that include one or more public transactions registered outside the internal market (on which the public offering is also carried out).
• Euro-equity offers. The peculiarity of issuing shares in euros for foreign investors is that they are intended for professional investors and are available to the public through financial intermediaries. Another important feature is that they are offered in EU countries outside of the issuer’s country of origin.
Each mechanism for attracting international financing of investment projects has some features of practical implementation, as well as advantages and disadvantages that should be taken into account when planning a specific project. Bancroft Partners offers professional support for companies that are preparing an issue of shares to raise additional capital in the world markets.
Intra-group corporate loans
In multinational corporations, it is common to conclude centralized contracts for attracting external financing for projects, which are concluded at the level of the parent company.
This allows the subsidiary to get better conditions than it could get on the market on its own. Intra-group corporate loans create ample opportunities for the distribution of funds between subsidiaries, depending on their needs.
When planning expenses, it is important to take into account the numerous restrictions on transactions with other related parties so that the interest rate on the intragroup loan is in line with the market interest rate. In particular, it is recommended to evaluate the theoretical credit rating of a subsidiary and analyze the interest rate at which companies with a similar credit rating are financed.
Today, businesses often request funding for projects abroad from local financial institutions and organizations, setting an interest rate on an intra-group loan similar to the interest rate on proposals received.
Of course, preference is usually given to financing instruments that are less regulated, allowing companies to set variable rates depending on the results of the investment project and the company’s performance.
Bank investment loans
An investment bank loan is a mechanism whereby a financial institution provides a company with a certain amount of funds to finance an international investment project.
The borrowing company, in turn, is obliged to make periodic payments, which include the repayment of the principal amount and the payment of the agreed interest.
The issuance of a large bank loan in the framework of international financing always requires an in-depth study of the operations by the financial institution’s risk commission and, if necessary, the request for guarantees that cover the risk of default by the debtor.
The advantages of investment loans for the implementation of international projects include:
• The company can receive all the required funds after the loan is issued and can immediately use them to finance construction services, engineering design and so on.
• Investment loans do not require significant fixed costs for organizing the financing process, unlike project finance instruments through SPV / SPE. A pre-agreed debt repayment schedule allows the borrower to manage the project in the most rational way.
• The loan agreement is concluded on individual terms, which are adapted to the needs of a specific international project. It is also possible to establish a grace period during which the principal amount of the loan is not paid.
• Costs related to the repayment of the loan are usually not tax deductible. This creates opportunities for tax optimization, which are actively used by multinational companies.
Despite the obvious advantages of this international financing instrument, long-term loans have a number of disadvantages.
For example, obtaining a loan requires a complex application processing procedure, which is associated with the publication of the financial statements of the borrowing company and the disclosure of information about the project.
If you need a long-term investment loan to finance a large project abroad, please contact our specialists. Bancroft Partners with international partners participated in the implementation of a number of investment projects in Germany, Brazil, USA, Mexico, China, Saudi Arabia and other countries.
Our rich international experience, solid financial base and strong business relationships around the world will contribute to the success of your business projects, regardless of the scale and level of innovation.
Eurocredits
Eurocredits are a special instrument of debt financing in European currency provided by banks or groups of banks.
This type of loan is usually provided for a medium to long term and can be used to implement large capital-intensive investment projects with a long payback period. Borrowers can be both the corporate sector and the government.
The interest rate on Eurocredits can be floating because capital providers finance these funds with short-term instruments to provide rates. The most widely used reference rate is LIBOR (London Interbank Offered Rate) plus spread. Operations in Euro currency are not subject to the jurisdiction of the country of origin of the creditor bank. In addition, they are not subject to many of the restrictions in that country.
International loans are divided into tranches, so the currency, reference interest rate and spread may be different for each tranche. If a loan is expressed in different currencies, it is called multicurrency.
These loans may include a multi-currency clause, allowing the borrower to change the loan currency at the agreed rate during agreed periods, minimizing the risk of rate fluctuations.
Since international loans usually require significant financial resources, they are usually syndicated. The loans required for the construction of large power plants, roads, factories and reservoirs, for example, can easily exceed a billion euros. This significantly exceeds the financial capabilities of most commercial banks, making financing difficult.
One of the first major projects implemented in Europe using a syndicated loan was the Eurotunnel project, which in 1994 had a total cost of £ 9 billion.
International project finance instruments
Project finance (PF) brings together large-scale mechanisms for international financing of investment projects, which are fully based on the ability of the project to generate cash flows to service debt.
Project finance instruments are built on multilateral contracts between stakeholders that jointly ensure the achievement of project objectives.
Project finance works through SPV / SPE, the sole purpose of which is the implementation of an investment project. A specially created and formally independent company guarantees that the assets will be used for the development of a specific project in accordance with the contracts. During the planning phase, such a project should be subjected to a detailed assessment to ensure financial, legal, environmental and technical viability and return on investment.
The most important aspects of PF are high leverage (on average, projects are financed by 20% by initiators and 80% by borrowed funds), a long implementation period (usually up to 20-30 years), as well as the use of the generated financial flows of the project for servicing debt.
The off-balance nature of project finance (the project’s debt is not reflected in the financial statements of the initiator) facilitates the implementation of ambitious projects by small companies that are unable to provide sufficient collateral to obtain loans. In this case, funds are provided against the future cash flows of the project, regardless of the assets of the initiator.
In most cases, these are projects with mature technologies.
Increased investment in infrastructure and the tendency of governments to reduce their budget deficits have become fundamental factors in the development of project finance around the world.
This funding model allows governments and private companies to jointly complete risky and costly projects, often through public-private partnerships (PPPs).
The most important features of project finance are listed below:
• The project participants create a special project company (SPV / SPE), which acts as a borrower, is responsible for attracting financing and implementing the entire project.
• The initiator of the project usually makes a certain financial contribution to its development (usually about 10-30% of the cost), linking the financing of the project with its management.
• The project company enters into multilateral contracts with key stakeholders, including contractors, suppliers, capital providers, customers and government (if applicable).
• The project company operates with a high debt-to-equity ratio, so creditors have limited claims in the event of bankruptcy.
• Guarantee agreements aim to ensure that the project is profitable enough to meet the requirements of the capital providers as the upfront costs during the construction phase are very high and no cash flows are generated.
• Project finance usually involves the creation of a reserve fund, which is formed from the current cash flow and protects the project from unforeseen circumstances during the life of the project agreements.
Today, project finance is widely used in the energy sector (especially the construction of solar and wind power plants, the development of other renewable energy sources), telecommunications, transportation, infrastructure projects and capital-intensive industries of modern industry.
Bancroft Partners specializes in organizing project finance schemes in the EU and beyond.
Our team is ready to attract debt financing for a large project in any country in the world. The geography of our services covers dozens of countries in Europe, North America, Latin America, Africa, the Middle East and East Asia.
We will be happy to advise you on any aspect of international financing for large projects.
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