Project Finance Case Study: Azito Power Plant

This report analyzes the project finance document of Azito Power Plant, including its financing sources, financial ratios, credit risks, and principle problems. It also provides lessons learned from the case study.

Project Finance
practical case studies

Table of Contents
INTRODUCTION...........................................................................................................................1
Discussion........................................................................................................................................1
Project finance.............................................................................................................................1
Reason for Choosing the Case....................................................................................................2
Analyse the main purpose of the project.....................................................................................2
Evidence...........................................................................................................................................3
Analyse the financing source of the company Azito power plant along with the structure of
financing......................................................................................................................................3
Analysis ...........................................................................................................................................4
Calculation of financial ratios and its analysis............................................................................4
Identify two key credit risk.........................................................................................................5
Principle problems related to the Azito power plant...................................................................6
Lessons learned from the case study of Azito power plant.........................................................6
Summary..........................................................................................................................................7
CONCLUSION................................................................................................................................7
REFERENCES ...............................................................................................................................8

INTRODUCTION
The case study discuss about the project finance document of the Company Azito power
plant basically the main purpose to make this finance report for get to know the company
financial position through understand the balance sheet of the company along with the cash flow
which mainly indicates the inflow and outflow of money in the organization, future projected
plan to perform the operational activity and the investors who invest their money in their
business for its expansion and the development purpose. Apart from this it also give the reason
for choosing this case study also it examine the main purpose of selecting the
project(Ahmadabadi and Heravi, 2019). After that, it analyse the main source of finance and the
structure of financing of the organization. Apart from this, it also compute some ratios of the
company which mainly indicates the financial position of the business in the company. It also
interpret the ratio and inform about the condition of business through the interpretation of ratios.
At last, it identify the credit risks and the problems which are faced by the company while
performing their projected tasks along with this it discuss about the lessons which they are
learned while preparing the report.
Discussion
Project finance
It is the process in which company is mainly required a funds in their business for
performing the long-term projects, which involves huge money to perform that big projects. It
mainly include those projects which are related to the projects of industries and public services
of infrastructure and others through a particular structure of finance. It is the mixture of both
liability and equity. Apart from this, the cash flows of the projects include debt servicing and
repaying of equity and liability. This project contains huge risk on the capita employed, there is
no revenue involved until the performance of operational activity is done(Featherston, 2019).
The parties who generate funds for their project they have no recourse available, if they fail to
achieve the target of their project because lenders who lend them money they use company
assets in case of its defaulted.
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Reason for Choosing the Case.
The main reason to choose the case of company Azito power plant is one of the biggest
thermal power plant in west Africa and because of its good reputation of the company. It also
want to know the investors of the company who invest their money in the business for its big
projected tasks also the company profitable situation, which mainly indicates the company
financial conditions through the computation of financial ratios with the help of company
balance sheet. Another important reason is to understand the development phase of the company
through which company increase their efficiency in the organization and perform task in a very
effective manner. It also helps to know that which type of problems company faced at the time of
maximising its plant capacity in every year(Singh and Bhusan, 2022). Apart form this it also
want to know the main strategy of the company which they want to implement in every year to
increase the efficiency of the power plant to achieve the projected tasks of the organization and
the how they implement their decisions in the company to get success, because in every firm the
decisions of the top level management is play a very important role for achieving the goals of the
projected activities.
Analyse the main purpose of the project
The main purpose to make this project is get to know the company profitable situation
and financial position of the business for long- term purpose and which type of risk they usually
faced while operating the projected task in the company and principle problems also which
create disruption in the activities of the organization. Basically, it also one another important
purpose to make this project is which type of activities company required a funds in their
business and in case if company default to pay then what type of assets available to them. Apart
from this it can easier to understand the planned activities of the company through the preparing
of project finance report(Debrah, Chan and Darko, 2022). It also helps to analyse the financial
statements of the company which mainly indicates the company profit and losses and how much
revenue they generate from the business. In this report it explain some various kinds of purposes:
 Allocation of risk: This case is mainly helps to indicate the risk which are related with
the project of the company Azito power plant. So, it helps the firm to allocate those risks
which are involved while performing the activity of the business venture.
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 Applicability of various participants: This report of Arito power plant is mainly involved
in large projects of the organization. It includes multiple parties to perform the project
and helps to manage its various aspects of the business. So, that is provide an assistance
to the company and handling the projected task of the organization in an efficient
manner.
 Repayment of debt with better cash flow: The main purpose of this project to analyse the
projected cash flow of the company Azito power plant, which mainly helps to repay the
debts or loans of the firm(Hein, 2020). If company having better cash inflows and less
outflows then it can easily repay the liabilities and can reduce the burden of debts but in
case if company having high outflows and less inflows then company need to decrease
the huge investment in cost and more focus to generate inflows in the organization.
Evidence
Analyse the financing source of the company Azito power plant along with the structure of
financing.
If any company want to perform the operational activity of the organization then it use
various sources of finance to generate funds in their company and fulfil the requirement of funds
in the company. According to the report of Azito power plant it analyse some various financing
sources which helps the company to create funds in the organization. There are some various
sources of finance which includes:
 By issuing equity shares of the company: If any company require money to perform the
projected activities then they issue equity shares and raising funds from the public to
fulfil the requirement of business. Azito power plant also do the same to generate funds
in their business for the expansion purpose.
 International financial corporation: This is an another source of finance which is used by
the company Azito power plant to create funds in the organization for its expansion
purpose, they take a loan from those financial corporation which are established in some
another country(Tang and Huang, 2019).
 International development bank (IDB): This is also one another source of finance which
are used by the company Azito power plant. They take a loan form the world bank who
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provide a loans to the reputed of firms of every country who need funds in their
organization for the expansion purpose. This source of finance provide a loan for the big
projects.
Structure of financing
It is the process in which company use the mixture of both debt and equity for generating the
funds in the organization to finance its projected activities. These two financing structure directly
affect the risk and value of the related business. The company Azito power plant also uses the
both quity and liability to finance its operational activity. They issue equity shares to create more
funds when they have lack of resources so, they issue shares for the public and focusing on the
development of the organization. Apart form this company also use some debt financing also in
which they take a loan from the international banks and financial corporation and create burden
of debt and perform the operational tasks or expansion of the organization(Seiti, Hafezalkotob
and Martinez, 2019). Basically debt financing involves huge risk because if company fail to pay
its loan amount then the lenders get the right on the company assets in case of its defaulted.
Analysis
Calculation of financial ratios and its analysis
 Return on capital Employed
Operating profit / Total Assets – Current Liabilities * 100
Return on capital Employed = (675 / 1912.50) * 100
= 35.29%
Analysis: The above ratio of the company indicate about the company performance through the
analysis of the return on capital employed of the company. It basically evaluate that firm
capability to generate returns on their invested capital is good enough.
 Net profit margin
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Net Profit / Sales * 100
Net profit margin = (300 / 2400) * 100
= 12.5%
Analysis: The above ratio of the company indicates the company performance through
calculating the net profit of the organization which comes through by subtracting all operating
expenses in the incomes of the company.
 Current Ratio
Current Assets / Current Liabilities
Current Ratio = 757.5 / 322.5
= 2.35 Times
Analysis: From the calculation of above ratio indicates the firm current ratio which is good as
compare to the ideal ratio that means the liquidity position of the company is good.
 Debtors Collection Period
Account Receivable / Sales * 365
Debtors Collection Period = (450 / 2400) * 365
= 68.44 Days
Analysis: The ratio indicates the collection of liability if it company takes less time then its
highly efficient take more time then its less efficient. In the company they take 68.44 days to
collect the debts of the frim.
Identify two key credit risk
The basic concept of credit risk is to analyse the creditworthiness of the borrower. In this
concept if any company need a loan to fulfil the requirement of the funds to perform the
projected activities and they borrow the loan from some financial institution and fail to pay its
debt then this type of risk is called as credit risk(Ebekozien, Abdul-Aziz and Jaafar, 2019).
There are some two key credit risk of Azito power plant which are given below:
 Diversity and stability of the business: If the company having a good diversified position
and remain stable in every situation and in a profitable condition then it reduces the risk
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of credit. Because in this case the situation of the company is already better and attain
success also.
 Profitable condition and capital of the business: Company credit risk is less if company
having good profitability and it invested high amount in their business in a form of
capital. This helps in analysing the repayment capacity of the business and stability of the
business also.
Principle problems related to the Azito power plant
There are some principle problems which are associated with the Azito power plant.
Which create an impact on the projected activity of the company. There are some problems
which make an impact on the company operations that are given below:
political problem: The company want to set up a new thermal power plant in some another
country then the political party of that country create an hurdle to them and they need to follow
the rules and obligation of the that country. Otherwise, it create an disruption in the activities of
the organization(Zhang and et.al., 2021).
Competitors risk: The company Azito power plant is set up a new plant in that country in which
some another organization capture the market of that country then its create a competitive
problem for the Azito power plant it create hurdle for the company and it takes time for the
company to build its reputation in the competitive market.
Lessons learned from the case study of Azito power plant
The above case study give some lessons which is important to learn from this report that
the company profitable situation which helps the organization for its development and expansion
purpose and its diversified position as well is good capacity to repaying its debt which assists the
firm to create its reputation in the market. The company Azito power plant consistently work to
achieve their targets in the organization and take good decisions which create stability in the
performance of the organization and work in a very effective and efficient manner to accomplish
their goals in a particular time. This is the reason company installed new plants with extra
capacity. The company Azito power plant faced so many problems while setting up a new plant
but still the efficiency of the company remain constant and remove all the barriers. Apart form
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this company always maintained its financial statements of the business which create its good
reputation and better repayment capacity to pay its debt.
Summary
The summary of the report is Azito power plant company is one of the biggest thermal
power plant of west Africa which mainly prepare the project finance report to understand the
financial position of the business and how much resources are required to perform the big
projects of the organization. This report is mainly provide the reason and purpose of choosing the
case. Apart from this it analyse various sources of finance company is use to generate the funds
in the organization along with its financing structure. Afterwards, it analyse and evaluate the
financial ratios of the Azitpo power plant company and determine its key credit risk and
principle problems which are associated from the company.
CONCLUSION
As it is concluded from the above report it mainly indicates the project finance report of
Azito power plant which helps the organization to know its financial condition, investors in the
business and profitable situation of the company. It analyse the main purpose of the report also
which express the various aspects to perform the operational activity. Apart from this it analyse
the sources of financing and explain the structure of financing also which helps the firm to
generate the funds in the organization for its development purpose. At last it determine the key
credit risk and problems associated with the Azito power plant and the lesson learned from the
above report.
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REFERENCES
Books and Journals
Ahmadabadi, A.A. and Heravi, G., 2019. The effect of critical success factors on project success
in Public-Private Partnership projects: A case study of highway projects in
Iran. Transport Policy. 73. pp.152-161.
Debrah, C., Chan, A.P.C. and Darko, A., 2022. Green finance gap in green buildings: A scoping
review and future research needs. Building and Environment. 207. p.108443.
Ebekozien, A., Abdul-Aziz, A.R. and Jaafar, M., 2019. Housing finance inaccessibility for low-
income earners in Malaysia: factors and solutions. Habitat International. 87. pp.27-35.
Featherston, R., 2019. Chinese Finance: Policy and Institutions.
Hein, B., 2020. Austrian Reconstruction and the Collapse of Global Finance, 1921–1931 by
Nathan Marcus. German Studies Review. 43(3). pp.629-632.
Seiti, H., Hafezalkotob, A. and Martinez, L., 2019. R-numbers, a new risk modeling associated
with fuzzy numbers and its application to decision making. Information Sciences. 483.
pp.206-231.
Singh, A. and Bhusan, C.S., 2022. Best Practices in Finance Education in COVID Era: IIM
Sirmaur. Management and Labour Studies, p.0258042X211067305.
Tang, B. and Huang, P., 2019, October. Study on The Current Situation and Problems of Green
Finance Development in Guangdong. In 2019 3rd International Conference on Data
Science and Business Analytics (ICDSBA) (pp. 487-490). IEEE.
Zhang, D and et.al., 2021. Public spending and green economic growth in BRI region: mediating
role of green finance. Energy Policy. 153. p.112256.
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