Project finance in construction a structured guide to assessment

Project Finance in Construction Project Finance in Construction A Structured Guide to Assessment Anthony Merna Oriel Group Practice Manchester, UK Yang Chu Postdoctoral Research Associate Manchester Business School The University of Manchester UK Faisal Fahad Al-Thani Senior Director and Head of Business Development Maersk Oil Doha, Qatar A John Wiley & Sons, Ltd., Publication This edition first published 2010 C Anthony Merna Blackwell Publishing was acquired by John Wiley & Sons in February 2007 Blackwell’s publishing programme has been merged with Wiley’s global Scientific, Technical, and Medical business to form Wiley-Blackwell Registered office John Wiley & Sons Ltd., The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, United Kingdom Editorial offices 9600 Garsington Road, Oxford, OX4 2DQ, United Kingdom 2121 State Avenue, Ames, Iowa 50014-8300, USA For details of our global editorial offices, for customer services and for information about how to apply for permission to reuse the copyright material in this book, please see our website at www.wiley.com/wiley-blackwell The right of the author to be identified as the author of this work has been asserted in accordance with the Copyright, Designs and Patents Act 1988 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by the UK Copyright, Designs and Patents Act 1988, without the prior permission of the publisher Wiley also publishes its books in a variety of electronic formats Some content that appears in print may not be available in electronic books Designations used by companies to distinguish their products are often claimed as trademarks All brand names and product names used in this book are trade names, service marks, trademarks or registered trademarks of their respective owners The publisher is not associated with any product or vendor mentioned in this book This publication is designed to provide accurate and authoritative information in regard to the subject matter covered It is sold on the understanding that the publisher is not engaged in rendering professional services If professional advice or other expert assistance is required, the services of a competent professional should be sought Library of Congress Cataloging-in-Publication Data Merna, Anthony Project finance in construction : a structured guide to assessment/Anthony Merna, Yang Chu, Faisal Al-Thani – 1st ed p cm Includes bibliographical references and index ISBN 978-1-4443-3477-7 (pbk : alk paper) Infrastructure (Economics)–Finance Industrial development projects Risk management Public-private sector cooperation I Zhu, Yang II Al-Thani, Faisal F III Title HC79.C3M47 2010 624.068 1–dc22 2010007731 A catalogue record for this book is available from the British Library Set in 10/13pt Palatino by Aptara R Inc., New Delhi, India Printed in Malaysia 2010 Contents List of illustrations List of tables About the Authors Preface xi xiii xv xvii Introduction 1.1 1.2 1.3 1.4 The development of project finance Financial assessment What is financial assessment? Why perform a financial assessment? Who is involved in the risk assessment process? Where should a financial assessment be performed? When should a financial assessment be performed? What data are to be used? How should assessment outputs be presented? Purpose of this guide Scope of the guide Project finance 2.1 2.2 2.3 2.4 Introduction Definition of project finance The key characteristics of project finance Special project/purpose vehicle Contractual arrangement Non-/limited recourse Off-balance sheet transaction Robust income stream of the project as the basis for financing Legal and financial considerations in project finance Legal Financial 6 7 8 9 11 11 11 13 14 14 17 18 19 20 20 22 v vi Contents Financial instruments and cash flow modelling 3.1 3.2 3.3 3.4 3.5 3.6 Introduction Debt finance Senior debt Mezzanine finance Subordinate debt Bond finance Equity finance Sources of debt and equity Cash flow modelling and project financing Risk management 4.1 4.2 4.3 4.4 Introduction Risk Risk management process Risk identification Risk analysis Risk response Typical risks in project financing The financial assessment process 5.1 5.2 Introduction The financial assessment structure SPV assessment Lenders’ assessment SPV and lender final assessment Case study 6.1 6.2 6.3 6.4 Introduction Independent power project Supply and offtake contracts Supply contracts Offtake contracts Applications of supply and offtake contracts Assumptions for initial assessment Developing the base case model 7.1 7.2 Introduction SPV’s initial assessment 25 25 25 27 28 28 29 31 34 34 39 39 39 41 42 44 47 49 51 51 51 51 54 55 57 57 57 58 60 61 64 65 69 69 69 vii Contents 7.3 7.4 7.5 7.6 Identify the estimated activities, time, costs and revenues of the project Development of the base case model Identify major project risks Assessment of base case model incorporating risks Initial economic assessment by lenders 8.1 8.2 8.3 Introduction Financial package assessment Finance package (1) Finance package (2) Finance package (3) Conclusions Financial engineering 9.1 9.2 9.3 9.4 9.5 9.6 Introduction Financial instruments used in financial engineering Forward rates Financial futures Swaps Options Caps, floors, collars, swaptions and compound options Asset-backed securities Refinancing Reappraising public–private partnerships Techniques applied in the reappraisal of PPP concession agreement Other financial engineering techniques 10 Final assessment to determine project commercial viability 10.1 10.2 10.3 Introduction Detailed risk assessment Financial engineering Tax holiday Financial collar Extending the concession Increasing debt 70 71 73 74 77 77 77 78 82 83 87 89 89 90 90 90 91 92 92 93 94 94 95 96 101 101 101 105 105 107 107 107 viii Contents 10.4 Grace period Phasing construction and operation Upfront payments Existing concession revenues Summary 11 Financial close 11.1 11.2 11.3 Introduction Due diligence Technical Legal due diligence Trigger step in rights Model audit and sensitivity analysis Risk valuation Term sheet Inter-creditor agreement Hedge strategy Letters of credit Reserve account Escrow and ring-fenced facilities Economic indicators Taxation Insurance Financial close Credit committee approval process Due diligence report Technical closure Financial close Technical commencement Execute interest rate swaps 12 Islamic finance and project finance 12.1 12.2 12.3 12.4 Introduction Islamic finance Shariah Qiyas and Litihad Core principles of Islamic finance Sharing (profit/loss and risk) 108 108 108 108 109 111 111 111 113 114 116 116 117 117 117 118 118 119 119 120 120 121 122 123 124 124 124 124 125 127 127 127 129 129 130 130 160 Glossary interest rate coverage ratio: Safety margin of a project to meet interest obligations internal rate of return (IRR): The discount rate that makes the net present value equal to zero loan life coverage ratio (LLCR): The net present value of cash available for debt service from the initial date of calculation until the maturity date margin: The percentage amount per time period above the interest rate or cost of funds Monte Carlo simulation: Random number generation to quantify the effects of uncertainty in a financial model net present value (NPV): The total present value of a time series of cash flows using the time value of money to appraise long-term projects operational expenditures (OPEX): The ongoing expenses associated with operating a facility or business project finance: A sponsor investing in and owning a single-purpose asset, usually for a fixed period, through a legally independent entity finance on a non-recourse basis project life cover ratio (PLCR): The net present value of a project’s cash available for debt service over a defined life divided by the amount of principal outstanding at the time of computation refinancing: Prepayment of existing debt through new debt on more attractive terms in illiquid markets sponsor: A party developing and financing (with equity) a project References Akintoye, A.S and Macleod, M.J (1997) Risks Analysis and Management in Construction International Journal of Project Management, Vol 15, Issue 1, pp 31–38 Altug, S.N (2002) Risk Management and Post Project Evaluation Processes for 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Smallman, C and Elkington, P (2000) Managing Project Risks: A Case Study from the Utilities Sector International Journal of Project Management, Vol 20, Issue 1, pp 49–57 Terry, B.J (2000) The International Handbook of Corporate Finance Financial World Publishing, Chicago, New York Thompson Reuters (2009) Global Project Finance Review Thomson Financial (2006) Global Project Finance Review, First Quarter 2006 Tinsley, R (2000) Advanced Project Financing: Structuring Risk, 1st edn Euromoney Books, London Ullman, G.N and Dayal, A.S (1996) India, Financing Power Projects In: Bauer, J and Allen, S (eds), Project and Infrastructure Finance in Asia, 2nd edn Asia Law and Practice Publishing Ltd, Hong Kong Vega, A.O (1997) Risk Allocation in Infrastructure Financing Journal of Structured and Project Finance, Vol 3, Issue 2, pp 38 Willingham, J (2000) Principles of Lending In: Terry, B.J (ed.), The International Hand Book of Corporate Finance AMACOM Books, Chicago, New York Index AA-rated project bonds, 159 ABG, 156–8, 160 Actual cash flow available for debt service, 106 Agreements, 5, 12, 15–17, 21, 35, 40, 58, 60, 95, 97–8, 114–5, 118–9, 122, 124, 131, 133 direct, 112, 114–15 financial, 15 inter-creditor, 117–8, 147 throughput, 63 Arbun arrangement, schematic presentation, 136 f Arbun (down payment) concept, 136, 136 f Ash-handling systems (ASH), 70 Asia-Pacific project finance, Assessment, 6, 8, 10, 39, 47, 51–4, 59, 69, 71, 75, 82–3, 85, 101, 107, 109, 145, 160 deterministic, 105 financial, 6–9, 51, 52 f , 56, 74, 141 initial, 34, 51, 65, 67, 69, 75, 78, 101, 163 lender’s, 51, 54, 77 Assessment of base case model, 52 f , 74–5 Asset-backed securities (ABS), 93–4 Asset-backed Sukuk, 134 Assets, 5–6, 11–12, 19, 26–8, 31, 33, 35, 38, 89, 93–4, 96, 119, 132, 136–8 leased, 133 project’s, 28, 38 Asset securitisation, 93–4 Assumptions, 57, 65, 112, 114–16, 124 Auditor, 113, 115–16, 119–20 Audits, 112–13 Availability-based payments, 21 AWA, 67, 70 Bai salam financing (forward financing), 138 Balance sheet, 13, 17–19, 37, 90 Banker, 18 Banks, 26, 34, 80, 121 Basel Committee on Banking Supervision (2004), 124 BDG, 68, 70 BLK, 68, 70 BLR, 68–70 Bonds, 8, 10, 17, 23, 25, 28–31, 35, 38, 54–5, 58, 67, 141–2 agreement, 15, 17, 58 finance, 29–31 holders, 7–8, 17, 29–30 Bond financings, 29 Bond issues, 30, 37–8 advantages over bank debt, 30 Bond ratings, 30 Standard and Poors’ & Moody’s, 32t BOOT, See Build-own-operatetransfer Borrower, 5, 15–16, 26–7, 29, 35, 37–8, 81, 92, 94, 109, 111, 114, 118, 121, 124–5 Build-own-operate-transfer (BOOT), 15, 15 f , 58–9, 64 assessments by SPV and lenders to determine the commercial viability, 59 f key organisations and contracts, 15–17 167 168 Budget, 5, 8, 46 Buyers, 14, 58, 63, 65, 90 CAPEX, 52–4, 78, 82–3, 84t–86t, 147 Capital asset, 12, 14 Capital intensive industry, 94 Cash flows, 4, 7, 9–15, 18–22, 25–7, 29, 34–7, 61, 67, 69, 71–2, 73, 79–80, 86, 91, 95, 101, 106, 108, 113 forecasted, 22, 38, 83 modelling, 13, 25, 34–8 projected, 35, 75 stream of, 137 Cash flow available for debt service (CFADS), 80 Cash lock-up, 37 CCFs, See Cumulative cash flow Channel Tunnel project, 34 China base case model, 69–75 activities, costs and revenue estimates and their timings, 70, 70t development of, 71–3 identify major project risks, 73–4 independent power project (IPP) under BOOT strategy utilising project finance, 57–8 projects with offtake contracts, 64 f projects with supply contracts, 62 f State Power Development Company (SPDC), 66, 69 primary and secondary contracts, 66–7 project programme: major activities, 67–8, 67 f SPV’s initial assessment, 69–70 Collars, 92–3 financial, 107 Collateral warranty, 115 Index Committee, 123–4, 128 Commodities, 4, 90,129, 132, 136 Compound options, 93 Concerned with estimates of the project’s capital (CAPEX), 53 Concession agreement, 6, 15–16, 21, 59–60, 65–6, 69, 95, 97, 135, 156 types of, 21 Construction contract, 17 Construction package, 71 Contingency and risk management, 114 Contract finance, 14, 58 Contract-led contracts, 62–3 Contract-led project, 61 Contract-led revenue stream project, 19–20 Contractual agreements, 13–14, 40, 58 Contractual arrangement, 14–5, 58–9, 158 Corporate finance, 17 Cost audits, 113 Coverage ratios, Credit committee, 123–4 Cumulative cash flows, 36, 53, 69, 71–2, 147, 161 base, best and worst case, 75 f model, 53 net cash flows, 36, 36 f stages, 136 f Currency futures, 91 Debt, 7–8, 10–12, 14, 18–19, 22, 25–31, 78, 80–87, 94–5, 98 bank, 28, 30 contract-led basis maximizing, 165 long-term, 26–7, 33 non-recourse, 12 refinancing, 94–5, 107 service, 77, 107 short-term, 27, 91 Index Debt assessment, 83 Debt balance, 80 Debt capital, 33, 159 Debt coverage ratios, 22, 80 Debt/equity ratio, 33 Debt for equity, 98t Debt finance, 25–8 long-term, 26 short-term, 27 Debt instruments, 26 Debt payment, 19 Debt service cover ratio, 55, 80–81 unsuitable assignment, due diligence, 116 Debt service reserve account (DSRA), 119, 147 Debt sources, Debt-to-equity ratios, 147, 160 Debt-to-equity swap, 94 Demand-based payments, 21 Design, build, finance and operate (DBFO) route, Detailed risk assessment, 101–5 See also Project risk cumulative probability analysis, 104 f pre-tax profits generated by the project, 106t risks affecting the project’s IRR, 102 risks and their upside and downside ranges, 102t sensitivity analysis, effect of risks on project’s IRR, 103 f stochastic probability analysis, 102 Detailed stochastic risk assessment, 105, 143 Deterministic risk assessment, 74, 141, 143 Dhahol power plant, 62t Dividends, 18, 28, 31, 33, 35, 54, 80, 83, 85, 105, 107–8 Downside risk, 26 169 DSCR See Debt service cover ratio Due diligence, 111–5 economic indicators, 120 financial, 115 insurance, 121 legal, 114–6 model audit and sensitivity analysis, 116–7 process, 10, 111–21, 112 f taxation, 120–121 Eastern Europe, Middle East and Africa (EMEA) region, 2–3 Elemental risks, 50t Energy conversion agreements, 63 Equity, 22, 31–4, 38, 49, 55, 82, 107, 119, 141, 160 Equity capital, 31 Equity finance, 31–4, 160 Equity investors, 33 Equity providers, 16, 108 Escrow account, 119 Escrow and ring-fenced facilities, 119 Existing concession revenues, 108 Extending the concession, 107 Finance manager, 37 Finance package, 78–87 80:10:10 debt/bond/equity, 86 f finance package of 80:20 debt/ equity, 82 f project economics and cover ratio table under 80:20 debt/ equity (US$ million), 84t Projected cash flow allocation under allocation table under 10:80:10 debt/bond/equity for the bond with a 10-year maturity (US$ million), 86t project economics and cover ratios under 100% debt (US$ million), 79t 170 Financial and non-financial risks, 49t Financial agreements, 15, 58 Financial assessment, 6–9, 56 outputs of, 8–9 process, 51–6 structure, 51–6, 52 f Financial close, 122–5 credit committee approval process, 123–4 documentation, 122 due diligence report, 124 execute interest rate swaps, 125 objectives, 122 process, schematic presentation, 122, 123 f technical closure, 124 technical commencement, 124 Financial collar, 107 Financial engineering, 89–99 financial instruments used, 90–94 procurement techniques, 96, 99 tools used, 89 Financial engineering techniques, 55 Financial instruments, 25 Financial markets, 27–8, 37, 89, 118 Financial package assessment, 77–87 Financial risk, 49t Financial Services Authority (FSA), 132 Financially free-standing projects, Fixed or floating swaps to mitigate interest rate changes, 107 Fixed-price lump-sum turnkey contract, 102–3 Fixed-rate borrower, 92 Funds, 4, 6, 19, 26, 29, 31, 33–4, 39, 82, 93, 119, 122, 148, 159 Foreign lenders, 26 Forward lease, 133 Forward purchase agreements, 21 Forward rate, 90 Fuel-based power generation, 63 Index Future cash flow, 35 forecast, 37 Future income stream of a project, 6, 19 Futures contracts, 90–91 Futures market in currency and interest rates, 90 Gharar, definition, 131 Global and elemental risks, 49t Global risks, 50t Grace period, 108 Guarantees, 19, 21, 57, 78, 99, 113, 115 Hedge strategy, 118 High demand, cautious lenders, 25–6 High financial leverage, 33 Highly rated bond, 30 Hubco power project, 61, 64 Ijara, the act of leasing, 133 Ijara Mawsufah Fi Al Dhimmah, See also forward lease, 133 Increasing debt, 107 Independent credit rating services, 30 Independent power project, 57–8 Institutional investors, 29 Insurance companies, 26, 29, 31, 121–2, 159 Insurance due diligence, 121 Insurance instruments, 121 Inter-creditor agreement (ICA), 117–8 Interest rate cap, 92 Interest rate cover ratio (IRCR), 81–2 Interest rate floor, 92 Interest rate swap, 91 Internal rate of return (IRR), 46, 53 best and worst cases, 102–5 International Association of Financial Engineers, 89 171 Index IRR See Internal rate of return Islamic bank, 128 Islamic banks’ assets, 128–9 Islamic finance, 127–9 deception, 131 hedging, 136–7 Islamic financial institutions, 131–2 project financings in the middle east, 132–7 risks and liabilities, 138–9 Shariah supervisory boards, 132 swaps, 137 Islamic financial institutions, 128, 130, 131–2 constitutional documents, 132 Islamic insurance (takaful), 138 Issuing or selling securities, 25 Istisna’a, 133–4 Joint ventures, Large-scale, capital-intensive projects, 26 Legal and financial structures, 21 Legal due diligence, 114 Lenders’ assessment, 54–5 financial packages, assessment of, 55 identifying sensitivity of risk variables, 47 initial economic assessment, 77–87 investing equity in projects, 33–4 Lenders’ direct agreement (LDA), 114 Letters of credit, 118–9 Leverage/ gearing or debt/equity ratio, 33 Limited-recourse debt, 18 Limited-recourse model North Sea oil projects, 18 Loan agreement, 17 Loan life coverage ratio (LLCR), 80–81 London Interbank Offered Rate (LIBOR), 92 Long-term debt financing, 26 Long-term supply contracts, 60 Lower-rated bond, 30 Market-based structures, 25 Market-led contract, 63 Market-led revenue stream project, 20 Medium-term debt, 27 Method statement audit, 113 Mezzanine finance/quasi-equity groups, 28–31 Minimum acceptable rate of return (MARR), 53, 71 Monte Carlo simulation, 46–7 Musharaka (equity financing), 137–8 Negative cash flow, 36–7 Net present value (NPV), 53 Non-financial risks, 49t Non-Islamic financing organisations, 139 Non-/limited recourse, 17–18 amount, event, time, 18 lending, 19 Non-recourse debt, 12 Non-recourse financing, 33 Off-balance sheet transaction, 18–19 Offtake contract (s), 16–17, 61–4 Oil and gas sectors bond finance, 29 On-balance sheet financing, 19 Operation package, 71 Operational expenditures (OPEX), 53, 54t, 78, 161 Operations contract, 17 Options, 92 Ordinary equity, 31 172 Organisation’s ability to pay off their debt, 30 PFI See Private finance initiative PFI-type projects, Phasing construction and operation, 108 Potential non-bank lenders, 26 Power purchase agreements (PPAs) with reliable offtakers, 61 market demand risk, 65 Power station projects supply and offtake contracts, 65–6 PPP See Public–private partnerships Predictable risks, 48 Preferred equity, 31 Preferred finance package, 55 Private finance initiative, potential advantages of, 4–5 potential constraints and problems, Private mezzanine transactions, 28 Probability analysis, 47 Production sharing agreements, 21 Profit and loss sharing/partnership finance, 130 Program audit, 113 Project finance, 11 applications and locations, 3, 64–5 supply-side factors, brief history, f contractual commitments among various project participants, 35 definitions, 11–13 demand for, demand-side factors, financial considerations, 22–23 financial parameters, 22–3 first quarter of 2008, future revenue generation, 37 goal/requirements, 13 history of development, 1, f infrastructure projects, 37 Index key characteristics, 13–20 legal considerations, 20–22 mobilising commercial debt, 25–6 modern history, North Sea developments, ordinary share capital for project procured, 33 potential constraints and problems, raising the finance, 37 requirements for successful projects, 13 revenues of a project (the project’s cash flow), dependence on, 37 strength of the contractual commitments, 35 supply and offtake contracts, 58–65 supply-side factors, transportation sector, Project finance deals, Middle East, Project finance loans risk involved, 40 Project finance transactions contractual arrangement, 14 major contracts, 14–15 quantitative risk analysis, 46 Project financing, 1–10 due diligence, objectives of, 111–2 future income stream of a project, schematic presentation, 135 senior debt, 27–8 typical risks, 49–50 Project life cover ratio (PLCR), 81 Project life cycle risks affecting phases, 50t typical costs and revenues, 54t Project operation, 60 Project procurement categories of, Index Project risk, 96 See also Detailed risk assessment identification, 42 management process, variations of, 41 Project sponsors, Project tender preparation and evaluation of, 16 Projected cash flows, 35 Public–private partnerships, reappraising of, 94–5 concession agreement, techniques applied, 95–6 base case, 96 contractual control heading, 97t–8t scale for project risk, 96 Pure equity, 31 Pure project financings, 18 Qiyas/ruling by analogy, 129 Qualitative risk analysis, 44–5 Quantified risks, effects of, 56 Quantitative risk analysis, 45–6 Rate of spending/‘cash burn’/, 37 Red line case, 53 Reducing risks, 48 Refinancing, 94, 95 Repayment for investors and lenders, 17–18 Repayment of loan, 12 Repayment of the financing, 19 Reserve accounts, 119 Residual risks, recognising existence of, 48 Restructuring, 95 Return on the equity, 33 Revenues streams, 19–20 Risk, definition, 39–40 Risk analysis, 44–7 Monte Carlo simulation, 46–7 probability analysis, 47 qualitative risk analysis, 44 173 quantitative risk analysis, 45–6 sensitivity analysis, 47 Risk assessment, flow chart, 43 Risk and uncertainty, differences between, 40 Risk avoidance, 48 Risk capital, 31 Risk identification methods, 42–4 Delphi technique, 43 outputs of, 43–4 Risk management process benefits, 48 cycle, 41–2, 41 f definition, 41 for an organisation, 43 f objective of, 41 processes, 41–9 Risk register, 117 Risk response, 47–9 Risk strategies, 47–8 Risk valuation, 117 Robust income stream of the project, 19–20 SAI deal, 135–6 project financing structure, 135 f Saudi Petrol-Rabigh project, Secured loans, 28 Security for lenders, 21–2 Seed capital/pinpoint equity, 33 Senior debt, 27–8 Sensitivity analysis, 47 Service provision direct agreement, 115 Services sold to the public sector, Shareholder agreement, 17 Shariah, 129 Shariah board function, 128 role, 128 Shariah compliant investments, 131 Shariah supervisory boards, 132 Sharing (profit/loss and risk), 130 Shifting the risk, 48 174 Short-term debt, 27 Short-term interest rate futures, 91 Special project vehicle (SPV), 29, 57, 69, 77, 101, 113, 141 assessment, 51–4 cumulative cash flow (CCF) model, 53 deciding supply–purchase contract, 65–6 initial assessment, 69–70 IPP procurement, 73–4 and lender final assessment, 55–6 project’s IRR, 53 parent company guarantee, 115–6 supply–purchase contract offers, 65 take-or-pay contract, 65–8 Spreadsheet software, 71 SPV See Special project/purpose vehicle Stand-alone project financing of, 12–13 Standard and Poor’s, 30–31 Standards and best practice, 114 State power development company (SPDC), 66, 69, 75 Stock index futures, 91 Subordinate loans, 29 Subordinated debt, 28-9 Sukuk al Istisna’a, 135 Sukuk, 134 Sukuk holders, 134 Sukuk issuances, 134 Index Supply contract, 16, 60–61 Swaps, 91 Swaption, 93 Take-if-offered contract, 62 Take-or-pay contract, 63 Tax holiday, 105 Term sheet, 117 Termination, 95 Throughput agreement, 63 Tolling contract, 63 Traditional supply contracts, 61 Trigger events, 116 Typical cover ratios used by lenders, 55t UK PFI, Unique or innovative tax structures, 120 Unsecured loans, 27–8 Upfront payments, 108 Warranties, 113–5, 138 Water treatment plants, 34, 173–4 procurement, 155–65 Water and Desalination Authority (WDA), 156 Working capital, 27 Worst case scenario, economic parameters for, 53–4 Zero coupon bonds, 29 Zero-cost collar, 93 ... 8.3 Introduction Financial package assessment Finance package (1) Finance package (2) Finance package (3) Conclusions Financial engineering 9.1 9.2 9.3 9.4 9.5 9.6 Introduction Financial instruments... Project finance The Ijara principle Ijara Mawsufah Fi Al Dhimmah (forward lease) Istisna a Sukuk Sukuk al Istisna a A typical SAI deal Hedging Swaps 12.6 Other Islamic finance techniques for projects... was introduced to involve the private sector in financing and managing infrastructure projects and service provision in the UK in 1992 (Mustafa 1999) Project finance has spread worldwide and includes