Study On Credit Enhancement Of BOT Project Financing

Lenders engaged in BOT project financing depend on future earnings and assets of the project, but there are so many risks during the construction and operation, which lead to failure of many BOT cases worldwide. The failure of projects makes lenders can't recover their loan and puts them into risk. Therefore, we research various measures of credit enhancement from the perspective of project company to ensure the smooth completion of the project and sufficient generation of cash flow for the lenders' debt service. This is not only for the benefit of the project company but also for the safety of the lenders which can achieve a win-win between the project company and the lenders.This paper first analyze the concept and characteristics of BOT project financing, upon which we find the credit basis of BOT project financing, that is the future cash flow, project assets and the contracts'support, and then we propose the specific measures of credit enhancement on the three basis respectively, thus form a complete system of credit enhancement for BOT project financing. After specific analysis of enhancement measures, we try to evaluate the effect of credit enhancement. We use the NPV method to quantitatively analyze the influence to the project revenue brought by the measures of performance guarantee and engineering insurance. In the hypothetical case, we make the NPV of the project remain unchanged to find the relationship between loan interest rate and guarantee rate, insurance rate, and finally we find the district in which credit enhancement can make a win-win between the project company and lenders. In the final, a full use of various credit enhancement in a sewage treatment plant makes the bank increase credit lines or lower its interest rate to some extent, and we still use NPV method to prove the effectiveness of credit enhancement measures.