Study On Applications Of Off-balance-Sheet Financing To PPP Projects

Urban infrastructure building is of vital importance to the development of national economy. The PPP(public-private partnership) financing modal makes public department policy supports and the personal department's abundant fund, advanced management, rich managerial experience together, and this modal have already been applied to the construction of urban infrastructure projects. However, the huge investments together with the high loans, which reflect in the balance sheet affects the asset-liability ratio. So In PPP projects, project sponsors usually try their best to arrange off-balance-sheet financing in order to avoid the impact of project debts on their creditworthiness. As off-balance-sheet financing may be abused to make cosmetic effect on sponsors'financial statement, accounting rules have been amended to make restrictions on its application after the Enron scandal. The restrictions made it difficult to achieve off-balance-sheet financing. Thus, this paper studied the application of off-balance-sheet financing to PPP projects at two levels: at the special purpose entity (SPE) level and at the sponsor level. At the SPE level, If a debt is not recorded on balance sheet of a SPE, the debt would not be shown on sponsors'balance sheet regardless of the form of SPE. It suggested to use operating leases. At the sponsor level, PPP projects are usually implemented through a SPE such as a limited company, a partnership, or an unincorporated joint venture. Different forms of entities have different accounting treatments. For sponsors less than three, it proposed to achieve off-balance-sheet financing through introducing trust funds in the form of equity. The findings of this study would be helpful for project sponsors to make decisions and make off-balance sheet financing in PPP projects in application widely.