INTRODUCTION

The two key categories of financing agencies for infrastructure projects are the equity investors and lenders. Equity investors generally refer to the investors who buy and hold shares of stock on a stock market in anticipation of income from dividends and capital gains, as the value of the stock rises. The main concern of equity investors is to ensure that returns from the project are attractive enough for them to invest in the project. The expected return from the project should commensurate with the degree of risk exposure to the equity investors.

On the other hand, lenders want to ensure that the project generate enough revenues to fulfil the operational and maintenance expenses and still have enough revenues to service the debt in a timely manner. In order to assess the project from lenders' perspective, lenders normally adopt several coverage ratios such as project life coverage ratio, loan life coverage ratio, and debt service coverage ratio.

The following sections discuss the financial evaluation of the project from perspectives of the two financing agencies.

FINANCIAL EVALUATION – LENDERS' PERSPECTIVE

Lenders also look into how the project has performed from equity investor's perspective in order to ensure that the project provide enough return for the equity investors, who are going an active role in developing and managing the project, so that they are interested in the success of the project financially. In order to evaluate the project, lenders normally adopt the coverage ratios such as project loan life coverage ratio, loan life coverage ratio, debt service coverage ratio, and payback period as the measures for evaluating the financial viability of the project from their perspective.

Project loan life coverage ratio (PLCR) measures the project company's ability to cover its total loan obligation over the total period of the project's expected life.

PLCR = PV (CADS)/PV (Total Debt)

Where, CADS = Cash flow available for debt service

PV = Present value