Financing for Finnish Projects
Private investments in Finnish projects usually rely on a combination of equity and debt financing, whereas the latter is primarily sought in the form of non-recourse project financing.
Project finance does not have a long tradition in Finland but has quickly gained popularity particularly with the rise of wind energy projects in the country. As Finnish banks have been somewhat reluctant to embrace project financing as a business model, a large portion of projects is being financed by banks from other European jurisdictions.
Investors seeking funding must present their project in a way which will convince the lenders. This includes a suitable range of contractual relationships to secure the project resources and evidence that the permits required under public law have been obtained. The cash flow forecast must provide a sufficient reserve so that there is no question-mark over whether all liabilities will be met under any circumstances (stress test).
From the perspective of the financing bank, the success of the project depends on all parties involved (sponsors, authorities, suppliers, insurance providers etc.) making their contributions in full and in accordance with the contract at the scheduled times. This means that:
The project participants must be known to be reliable
There is clear contractual definition of the obligations of the various participants and adequate compensation is stipulated in the event of breach of contract
The various contracts must be reasonably coordinated to ensure the project implementation according to the cash flow and profitability calculation.
Banks will instruct their own trusted technical experts and lawyers to analyse the technical and legal risks involved in the project. If this due diligence exercise throws up problems, this will cause delay and it is possible that the loan conditions will become less favourable or that financing may not be forthcoming. In order to minimise risk, an operator should conduct its own technical and legal assessment as soon as possible and in any event before the start of the financing negotiations.
The security package plays a key role for the project financing loan decision as the sponsors do not assume any personal liability. Next to an adequate proportion of equity financing, the bank will typically require pledges on all relevant project assets, the SPV’s bank accounts, and also the shares in the SPV itself.