The Portuguese Government has defined as a strategic priority the implementation of a set of new infrastructures and the expansion or improvement of existing infrastructures – I am specifically referring to projects such as the new airport, the high-speed rail network, the reinforcement of the country’s port capacity, investment in new hospitals or data centers, to name a few examples.
The need for investment in infrastructure requires financial solutions adapted to the nature and risk profile of each project.
As the private sector is called upon to execute part of these investments, and investment capacity is a strategic factor to ensure the competitiveness of companies, it is in this context that structured financing assumes particular relevance as a solution. tailor madedesigned according to the risk profile and specific needs of each project, thus allowing greater adequacy between, on the one hand, financing terms and conditions, and, on the other, the cash flows generated.
Structured financing consists of providing debt capital for specific projects or assets, with the repayment plan defined based on the expected profitability of these same assets. This is an approach that privileges the adequacy between the cash-flow free of a project – the financial resources that the project generates after covering operational and investment expenses – and the financing conditions, using guarantees limited to the assets involved.
This type of financing allows companies to support investments in critical infrastructure, such as renewable energy production assets or projects in partnership with the public sector, through structures such as project financethe best-known sub-typology of structured financing.
By being based on guarantees from the project itself, and not on corporate or shareholder guarantees, structured financing allows you to isolate risks, free up the company’s balance sheet, creating space for other strategic initiatives, and can even guarantee greater diversification of financing sources. Furthermore, it enables access to longer terms than those typically achieved in other types of financing.
This type of financing is also used to support company growth through acquisitions (acquisition finance)or to finance real estate projects based on their expected return, and each type will then have differences in what the financing guarantees are.
It should be noted that the ability to raise structured financing for a given project depends on the ability to predict its profitability. It will be companies with the most robust profitability projections, whether mature companies with a solid history of results, and/or companies with business risks duly mitigated, that will benefit most from this type of financing.
Banks play a fundamental role in this context, supporting companies in the execution of these investments, through financing structures designed specifically for each project.
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