Project Finance

What is Project Finance?

The government just announced a much-needed underground metro project for a city. The estimated cost for this ambitious project is INR 30 crores. The government has approached a corporate to take up this project. In order to carry out this project, a special purpose vehicle (SPV) has been formed by the corporate and the city’s development authority. 30% of the project’s cost is to be funded by equity – most of it by the corporate and the rest by the government. The remaining 70% will have to be funded by debt. But who will lend to this massive project? 

This is where Project Finance fills the gap. Several banks and financial institutions have a Project Financing arm, which analyzes large infrastructure projects like roads, highways, ports, oil and gas projects etc. to evaluate if these are good debt investments. It then arranges debt funding for them. Apart from this, most infrastructure players have their own in-house Project Finance teams as well, which manage the end-to-end financial implementation of their large projects.
Key skills for an entry-level role would be:
1) Strong analytical and quantitative skills: Since this is a core finance and numbers related job, it is important to be comfortable with numbers and to possess strong analytical skills to put together various kinds of reports
2) Knowledge of accounting, financial analysis and reporting, regulations, taxation: Knowledge is the differentiator that can decide who can and who cannot be hired for this role. Someone who already has the requisite knowledge will always be preferred since being a support function, firms prefer not having to train the employee. Having the required qualifications and / or undergoing courses offered by training institutes would help in a big way
3) Attention to detail and diligence:Ultimately, you will be working with numbers and it is no good if you made a decimal point error in writing down the profits! Every word and number put out has strong implications on the company’s finances and hence accuracy and diligence is key
4) Problem solving: You need to demonstrate problem solving skills if you are vying for a senior role
5) Strong interpersonal skills:You will liaise with a lot of people in this job. They could be people within your own team, other departments, investors, customers, suppliers, bankers etc. To be effective, you need strong interpersonal skills and assertiveness
How to get in: 
• A major chunk of Corporate Finance professionals or Finance Managers are CAs or MBAs in finance
• Rarely, you also see commerce graduates who have worked their way up the ladder. 
• Certifications like the CFA may give you the extra knowledge/edge needed

At the entry level, candidates join as Associates / Executives. Typically they have MBAs in finance or are CAs. Some are even graduates with prior experience working in projects

  • Most Project Finance firms have teams divided by industry expertise. In-house teams work on their company’s projects which are usually in one particular sector (unless it’s a diversified conglomerate – then there are different teams within)
  • Executives have to examine if a project is viable. For this they use financial analysis and do thorough research on the project. They run several “what-if” or scenario analyses on the project to understand the risks.
  • Once a project is deemed viable, the work of getting it funded starts. Marketing materials are then put together and lenders are approached. The firm often commits its own money to the project and needs to get internal approvals for the project.
  • Since the projects are usually long drawn and extend over several years, managing the project requires daily/weekly reporting, handling compliance and legal issues, accounting, fund management and general project planning on an ongoing basis.

Companies to target:

  • Consultant companies: IL&FS, IDFC, E&Y, KPMG, PwC.
  • Infrastructure players: L&T, GMR, Reliance Group, DLF, IBM, HP.
A typical day in the life of an RM (entry level):

• You take a look at all the meetings lined up for the day: you have 2 client meetings and 2 internal meetings
• You run to the first meeting and help your client (a big corporate) decide on the right terms for a 10 year loan
• On coming back, you initiate the paperwork on the loan and also a term deposit another client wants to start
• You rush to an internal meeting where the product team is discussing a new product being rolled out
• You then meet some clients who have come to the branch and solve their queries (an unscheduled meeting)
• Final meeting with a client, another internal meeting with the compliance team, some more paperwork and then you are done for the day!

Salary and perks:
• The starting salary for a Commercial Banking RM is around INR 7-10 Lakhs / annum depending on the bank
• MNC banks often pay higher (~INR 12 Lakhs+) along with a variable bonus

Interview with Gautam Bothra, who has a rich experience in Project Finance as part of the in-house team of an MNC IT infrastructure company

Proschool : Please tell us about your background and qualifications
Gautam : I pursued my CA, CS and CWA along with my graduation, while managing my articleship, followed by industrial training. Post my qualifications, I joined my firm and during my job, I also pursued CIMA.

Proschool : Why did you decide to pursue this career and how did you get into this role?
Gautam : Coming from a business family, I always understood the importance of finance and had a knack for it. So when the time came to make a decision, it was a natural call for me. I was always good with numbers so that was a plus. Post qualification, I was interested in core finance and as the role being offered to me was in Project Finance, I took up the opportunity. Even in my articleship days, I had worked on a number of assignments involving greenfield projects. Together with my academic training, this suited the requirements of the job well

Proschool : A typical Day for a Project Finance executive?
Gautam : The role involves the end-to-end financial implementation of different projects that the firm undertakes. So the role requires everything from the initial stage of planning cash flows, to project planning and analysis, project funding, fund management, compliance as well as accounting for reporting purposes. Reporting the project status to various stakeholders also forms a part of the role
My typical day starts at 9 AM where I first check my emails to see if any urgent tasks require immediate attention. Aside from some time bound deliverables like reporting to the management and preparing timely status reports, it is more of an unstructured day where things are managed as and when they arise

Proschool : High points in your career so far?
Gautam : Besides availing several qualifications in a short span of time, I find immense satisfaction in being an outstanding performer in my current role. To top things, the satisfaction of imparting my knowledge to my fellow aspirants is another high point in my career

Proschool : Deals / projects you have worked on?
Gautam : I have worked for greenfield projects (Hospitality projects), IT infrastructure and software projects for banking and financial institutes

Proschool : Challenges faced?
Gautam : One of the biggest challenges in a finance role is to help the business remain viable. Ensuring that the costs do not exceed the budget, while at the same time understanding that quality cannot be compromised is another challenge in my day-to-day activities. It is imperative to understand the needs of various stakeholders and manage their requirements without compromising on the business side of business

Proschool : Outlook for the industry?
Gautam : The recession of 2008 did not impact our business much since the IT infrastructure gap in India is huge. Having said that, we still had to take a bit of a hit in our margins due to cost cutting across industries.The recent elections have put up a stable government, improving the overallindustry sentiment. Our current Prime Minister is a great champion of IT which has brought good news for us too and we expect to see a lot of spending in improving and installing IT infrastructure in both public and private sectors

Proschool : Career opportunities for aspirants in India (and elsewhere)?
Gautam : With increasing complexities of business and globalization, standards are being changed at a pace faster than we can imagine. This throws up a lot of opportunities in various segments of finance. I believe the industry at this point, has more demand than supply

Proschool : Word of advice for aspirants?
Gautam : I feel that an aspirant in finance should lay a lot of emphasis on conceptual understanding over rote learning. It is also important to simultaneously work on soft skills and communications. This would go a long way in building a robust career in finance. All the best.