- Importance of international project financial
The advantage of these projects to industries lies essentially in limiting the risks incurred.
In effect, bankers are in a better position to bear such risks in view of diversification of
their lendings internationally.
Finally, project financing may be rearranged in such a manner that the company may
avail maximum plausible advantage related to depreciation, tax credits/facilities,
deduction of financial charges, etc.
Lenders tend to receive higher compensation, commensurate with higher risks. Their
participation in international financing has potentials to augment their income. Further,
they can supervise the project as its development progresses and may orient it in such a
way so that their interests are better looked after. By participating in these projects, the
bankers acquire expertise in dealing with certain types of projects. This, in turn, help in
promoting their business.
- Financial Risk
In general, international projects are prone to greater financial risk as bulk of finance is in
the form of debt. The major factors affecting financial risk are degree of indebtedness,
the terms and conditions of repayment of debt, and currency used.
- Political Risk
Political risk is another major consideration in international projects. It may emanate
from increase in the rents, increase of customs duty on the imports necessary to complete
the project, exchange control and non-convertibility of currency, limits on transfers, non-
payment of debts committed by a previous government, war, etc.
Financing resources of subsidiaries of multinationals
The major financing sources available to subsidiaries are as follows:
a) Internal resources of the subsidiary;
b) External local resources;
c) Internal resources of the group;
d) International resources.
Internal resources of a subsidiary consist of non-distributed profits and accumulated
depreciation. The quantum of internal financing depends on:
a) The rate of growth of the subsidiary;
b) The profitability of the subsidiary;