"Finance is the cornerstone to the success of a project. No project can proceed without finance," Khin Maung Oo, deputy director-general of the Myanmar Attorney-General's Office, said in the opening speech on Monday to a closed-door seminar in Nay Pyi Taw on the legal aspects of project financing.
The event was organised by LS Horizon, a Thai law firm specialising in energy and power project development, in cooperation with the Myanmar Attorney-General's Office.
The bankers explained the requirements for project finance.
Saitien Thongplengsri, senior vice president of international banking at Bangkok Bank, said that usually if a company sought funding for a project, there were two options to consider - project finance and corporate finance.
"When we say corporate finance, we mean that the company or the developer of the project will finance it relying on the balance sheet of the company, and the total business and financial resources of the borrower as the source of repayment," she said.
Project financing relies on future cash flow from a specific development as a primary source of repayment with that development's assets, rights and interests legally held as collateral. The collateral is usually held by a special purpose vehicle separate from the project owners or sponsors. Project financing is typically structured with no or limited recourse to the sponsors.
"For example, in Thailand, when construction firms plan to invest in a power plant, they usually practise project financing. In many cases, the project can get a longer-term loan from banks," Saitien said.
But there are also some disadvantages to project finance.
"First of all, there are disadvantages that are complex, and that is why you need a good law firm to help you. In many cases, it can take time because, for example if it is for a solar plant, you need to collect data on the radiation and record them. In some cases, they need to do an environmental study as part of the requirement of the regulators. So it takes a long time, and the bank itself also takes time to study the project.
"Another point is risk management. In many cases, the lender asks the contractor to provide a guarantee for on-time completion of the project.
"Lastly, lenders have tight control over the project. Lenders don't have other sources of income. That is why they have to closely monitor the project," she said.
Krungthai Bank officers said Myanmar had recently reshaped the country's regulatory framework for international financing. Changes to foreign-exchange laws and banking and investment regulations, in combination with the easing of Western sanctions, have resulted in a more attractive and secure framework for foreign lenders to provide financing in Myanmar.
Under the double-taxation treaty between Myanmar and Thailand, withholding tax on gross interest paid is limited to 10 per cent.
"Financing projects in Myanmar will be based on the projected revenue of a project, not the creditworthiness of the ultimate owners of the project and the collateral. We still need to know how effective laws and regulations get implemented," said Sujira Kittidusadeekul, vice president and corporate banking manager at KTB.
Chaipat Kamjadasakorn, a partner of LS Horizon, discussed the role of project financing during a panel discussion.
"For corporate financing, we don't need to involve the bank at the initial stage. And we will count on the assets, rather than the activities, such as what they are doing, what kinds of business they are involved in. In that case, we don't have the involvement of the bank.
"As for project financing, if you have a bank to provide project financing, you need to involve it. You need that stage. So you need to seek advice on what kind of financing you need for this kind of project."
source: The Nation
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