Principles of Project Finance

It is sometimes claimed that an additional merit of leasing is that it provides

100% finance: this is correct in the sense that 100% of the cost of the equipment

being financed is covered; however, this does not mean that 100% of the project’s

overall costs are financed:

• Lease finance is unlikely to be available to pay for land acquisition.

• Tax leasing for buildings is usually less attractive than leasing of equipment.

• “Soft” costs such as development costs and interest during construction are of-

ten not covered—and thus even if no other debt is raised investor equity will

still be needed. Furthermore, the loss of the residual value of the equipment

which may occur with some lease structures is an additional hidden cost.

“Synthetic” leveraged leases ...