MC Capital ®™ is a leading provider of project and commodity funding.
Commodity and Project Finance have dominated the area of private finance throughout emerging markets. This was mainly driven by the lack of alternative cost-efficient mechanisms available to commodity producers and traders and banks to manage the project risk. Recent innovations in asset-backed finance did not undermine the importance of Commodity and Project Finance, but on the contrary, enhanced their integration and contributed to the evolution of new structured finance techniques.
Commodity Finance is a financing mechanism whereby an inventory or flow of commodities is isolated from its owner and can be used as collateral for security and repayment. Project Finance is a financing mechanism, in which the project is separated from its sponsors and funding is based on the assumption that the project will generate a sufficient surplus cash to enable debt servicing and provide return to the sponsors and other investors.
Despite some notable differences between Project Finance and Commodity Finance, there is some trend towards convergence, as projects today are increasingly being financed on the back of hybrid asset-backed structures, taking elements of both techniques. Classical Commodity Finance had started with financing short-term projects, while Project Finance has always been used for long-term projects. But today this difference is no longer valid, as innovative techniques pushed tenors in Commodity Finance well into the mid-term.