Project financing is funding massive infrastructure projects based on the project's own future cash flows — not the sponsors' balance sheets. A toll road, power plant, or airport is set up as a separate legal entity (Special Purpose Vehicle). Lenders look at the project's projected revenues — not the parent company's assets — to decide whether to lend.
Typical structure: 70-80% debt and 20-30% equity (sponsor contribution). The high leverage works because infrastructure projects have long-term, predictable cash flows (toll collections, electricity tariffs, airport fees). Major project finance deals: India's Delhi-Mumbai Expressway, Saudi Arabia's NEOM, and numerous wind and solar farms globally.
Project finance is essential for infrastructure development in developing countries. Without it, governments and companies could not build highways, power plants, and airports costing billions. The World Bank, Asian Development Bank, and IFC are major project finance lenders. Global project finance lending exceeds $300 billion annually — critical for achieving infrastructure and renewable energy goals.