On execution of the contract between the private partner and the public entity, one of the key activities that the private partner undertakes is to achieve financial closure for the project. Activities that lead to financial closure include identifying and organizing the sources of finance for project development. MCA for development of National Highways sets out achieving financial close as one of the conditions precedents to be fulfilled by the private partner.
In this regard, the term 'financial close' is often used by both the public entity and the private partner, the fulfilment of which means that the private partner has made provisions for the disbursement of funds for project implementation. This module sets out key elements of financial closure.
| Why is Financial Close Relevant? 1. Perspective of the Public Entity • To ensure that the private partner has made all suitable arrangements for disbursement of funds required for the project • To understand the presence of pre-disbursement conditions (if any) prescribed by the lenders 2. Perspective of the Lenders • To get a clear picture about the revenue model of the project • To understand the debt service capability • To understand the acceptability or bankability of the risk sharing framework 3. Perspective of the Private Partner • To be ensured of the financial support and commitment of lenders' towards the project |