Looking at the risk associated with the investment in Financing the Mozal Project case solution , there are several risks which can be identified. First of all, there is the project’s size of $1.2 billion. This is not only very large in comparison to Mozambique’s current GDP of $1.7 billion but also would an investment into Mozal demonstrate the largest investment for the IFC thus far which definitely projects quite some risk on the IFC. Another issue the IFC should be concerned about before investing in the Mozal project is the request of an “A loan” by the two sponsors. This would expose the IFC to even more risk since under “A loans” the investment would be on their own portfolio.

Furthermore, the unstable political environment should further concern the IFC. Even though the outlook by the Economist Intelligence Unit (EIU) is quite positive, country risk is still very high. With the civil war being over for 5 years only the country still belongs to one of most unstable and risky countries. In addition to this, the civil war destroyed most of the country’s infrastructure which also may cause serious problems on the smooth operations of the Financing the Mozal Project case pdf. Moreover, there are two more risks that also need to be considered carefully since the project given its size bears a relatively large risk of default. The first of the two last risks would be the bank’s reputational risk in case the project would file for chapter 11. Under this scenario, the IFC’s ability of realistically assessing project risk would be questioned making the IFC a less trustworthy advisor on project finance. Another risk Casementors which might be much more important though relates to Mozambique. In case of the project’s failure the country would lose a significant amount of development opportunities which might delay further future investments by an indefinite Besides these risks, there are also more risks which do not concern the IFC in particular but which should be assessed when making an investment decision. As was already analysed in the previous part, there are further risks coming along with the project. These risks are sovereign risk, construction risk and operating risk. Even though these risks are crucial and need to be analysed carefully, the sponsors do already adequately address most of these risks by trying to hedge them. This is for example done by setting input prices equal to the LME aluminium prices or by signing long-term supplier contracts. Therefore, these risks can be seen as less severe by the sponsoring firms and should be of a lesser concern to the IFC when making an investment decision.

Assessing now the projects advantages, tFinancing the Mozal Project case solution can be a great opportunity for Mozambique to increase its GDP and to start developing. Thus, the very large project size in relation to the country’s GDP can also be seen as a big advantage since, if Mozal will be a success, this project will significantly contribute to the country’s GDP which in return will boost foreign direct investments. In addition, the project will improve the country’s infrastructure and will create jobs – both factors will also contribute to a rise in GDP. According to Kleimeier & Versteeg, “project finance is a high-quality financial instrument that leads to better investment management and, ultimately to more economic growth” especially in low-growth countries where financial development and corporate governance is weakest (Kleimeier & Versteeg, 2010). Under project finance, a high leverage ratio secures the project company from any expropriation by the local government, it decreases agency costs and, in particular, it is a very good vehicle of investing in risky countries. In addition, Alusaf’s mother company Gencor can rely on a successful history in aluminium smelter plant constructions and operations. Most importantly however is that this project will add a substantial part to Mozambique’s economic growth and hence would be perfectly in line with the IFC’s mission of promoting private sector investments in developing countries as a way to reduce poverty and improve people’s lives (Esty, 2003). The project’s positive NPV of $90.3 Mio. and an IRR of 20.27% in comparison to a cost of equity of 17.72% also supports an investment in Financing the Mozal Project case ppt by the IFC. Nevertheless, the requested “A loan” should be negotiated with the sponsors Click Here – the same applies for the amount asked of $120 Mio. which indeed would be the largest investment in the IFC’s history.