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Project financing

Project finance is the financing of long-term infrastructure and industrial projects, based on a complex financial structure: project debt and equity finance the targeted project, and debt is refunded by means of the cash flow that the project generates. All of the project assets secure the financing. Project finance employs legal instruments, such as securities, loans, and bond issuance, and it optimises the potential of these instruments. It is carried out through a number of steps: specialised Tunisian institutions (banks, funds) contribute to the financing. In this respect, syndicated credit appears to be banks' favourite financing technique.

The first stage in project financing is the choice of the stakeholders (operators or investors) that will be the incorporators of the company carrying out the project. The next step is to find financing from lenders, sponsors, or government funding. After that, the project securities will be optimised: the risks connected with the project are identified, as are the methods that stakeholders will use to manage these risks and secure the project.

In Tunisia, global institutions (such as the World Bank), regional institutions (such as the African Development Bank) and/or national institutions usually finance these projects. In addition, special funds have been created to participate in certain types of projects. One of these is the Fund for Decentralisation and Industrial Promotion (FOPRODI), governed by Law 78-578 (June 9 1978) and its modifying texts. It aims to promote entrepreneurs, to encourage the creation and the development of small and mid-sized industrial companies, and to carry out incentives for the decentralisation of investment in the industrial field. Law 78-578 fixes the criteria for industrial projects' eligibility for financial support from the FOPRODI, including a financing scheme with at least 30% of the investor's equity capital. The law also specifies the type of support that the FOPRODI will provide; it depends on the amount of the investment. The loans granted by the fund should not exceed 70% of the total investment amount.

The Fund Encouraging Innovation in Information Technologies, created by the Finance Act of 1999, is governed by the provisions of Decree 2003-2053 (October 6 2003). It aims to encourage innovation in the field of information technology. To benefit from its support, the financial scheme should include at least 50% of the project cost as equity capital.

In the export field, the Financial Act of 1985 created a Fund for the Promotion of Exports (FOPRODEX). It is governed by the provisions of Decree 85-944 (July 22 1985) and its subsequent texts. The fund promotes exports, helping companies with their export market development. The fund's financial aid takes the form of loans and subventions to support either export deals or promotional operations. The scheme usually involves a company self-financing up to 20% of the project costs and an endowment from the FOPRODEX, which does not exceed 80%, in loans and subventions.

Since the establishment of the Financing of Small and Mid-sized Companies Bank in March 2005, 82 funds have been paid out, and TD13 million ($11 million) globally. These funds were used to set up or expand projects across all sectors, with most being in the food industries. The Bank does not provide all the credit for the project; other banks and financing institutions contribute, such as investing companies in the case of risky assets, and leasing companies.

According to article 21 of Law 95-87 (October 30 1995), the role of the Companies Investment in Venture Capital (SICAR) is to participate in the reinforcement of equity companies, on its own behalf or on behalf of third parties and for the purpose of retrocession. The companies notably include those set up by the new promoters as defined by the Investment Incentives Code, those in the areas of regional development, those facing economic difficulties and subject to recovery proceedings in accord with the regulation in force, and companies promoting technology or controlling technology and innovation in all economic sectors.

Project financing would hardly be drafted without the syndicated credit scheme. Two or more financial institutions jointly arrange the syndicated credit, to share the risk. Every syndicate member has a separate claim on the debtor, although there is a single loan agreement contract. The company first chooses a bank that will act as arranger of the deal. The arranger will be paid specifically for its role in counselling and placement. The pool is coordinated by a leader who will develop general financial mounting, at the forefront of relations with the beneficiary pool of funding.

The participation of banks in the pool is twofold: participation in the financing (flow of funds) and participation in risk (if the customer is in default, the agreement defines the actual quota of the bank). The participation risk is not necessarily equivalent to the quota financing. The bank may agree to take more risks than its own share of funding, for an additional fee.

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