In the end though, disregarding investors may prove to be a bigger pain. In the autumn ofAES received another shareholder proposal requesting that it lower its special meeting threshold to 10 percent. While it appears that AES won the battle by ensuring that the shareholder proposal did not go to a vote, it may have lost the war. As a result, shareholders will likely be looking to AES to demonstrate responsiveness to these votes in the coming year.
Project finance tends to be used in projects with tangible assets with predictable cash flows in which construction and operating targets can be easily established through explicit contract. The key to AES projects financing lies with the precise forecasting of cash flows.
In effect, the possibility of estimating cash flows with an acceptable level of uncertainty allows for allocation of risks among various interested parties. The ensuing certainty in cash flows allows for high level of leverage and enables project assets to be separated from the parent company.
Let us now take a closer look at the pros and cons of the Capital Budgeting System currently in place. This SPV is the formal borrower under all loan documents so that in event of default or bankruptcy AES is not directly responsible before financial creditors. Instead, their legal claims are against the Aes case analysis assets.
Maximize Leverage Currently AES seeks to finance the cost of development and construction of the project on highly leveraged basis. High leveraged in non-recourse project financing permits AES to put less in capital to put at risk permits AES to finance the project without diluting its equity investment in the project.
Off-Balance Sheet Treatment AES may not be required to report any of the project debt on its balance sheet because such debt is non-recourse. Off balance sheet treatment can have the added Aes case analysis benefit of helping the AES comply with covenants and restriction relating to borrowing funds contained in loan agreements to which AES is also a party.
Agency Cost The agency costs of free cash flow are reduced. Management incentives are to project performance. Most importantly close monitoring by investors is facilitated. Multilateral Financial Institutions One of the four constituents that have contractual arrangement with the SPV in a typical project are the banks an integral part group of financiers that include share holders, insurers, equipment manufacturers, export credit agencies and funds.
Presence of these institutions as financiers helps in raising capital from these institutes at lower cost and secondly it is also read as a positive sign by commercial banks.
The current financial model does not provide the AES with the big picture, which now constitutes more number of variables that are being influenced by multiple factors due to the increase in depth and breadth of the organization. Complexity Financing of projects requires involvement of a number of parties.
They can be quite complex and can be expensive to arrange. Secondly it demands greater amount of management time.
Macroeconomic Risk The current methodology employed by AES for capital budgeting does not take into account the exchange rate risk.
This risk will be of higher magnitude in the developing countries because of their unstable monetary and fiscal policies . This risk becomes important when the exchange rate fluctuation affects balance sheet items unequally.
Thus keeping check on the foreign exchange rate requires timely adjustment of both the items of revenue and expenditure, and those of assets and liabilities in different currencies.
This is another important factor which the current financial management system does not take into account. This will be of significant importance when it comes to investing in developing countries where frequent changes in government policies occur. Does this system make sense?
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The financial strategy employed by AES was historically based on project finance. This approach solely took into account those factors that minimized AES exposure to the project and achieved the most beneficial regulatory treatment thus ensuring availability of financial resources to complete the project.
The model worked well for the domestic market as well as for the international operations, provided the opportunities undertook by AES were either in the sector of building and running a power plant or simply buying an existing facility and upgrading it and then operating.
The underlying assumption over here was that the symmetrical and asymmetrical risks faced by the project were more or less same irrespective of its geographical location Refer to Exhibit 3.
However when AES started diversifying the breadth of its operations by incorporating other offshoots of energy related business and transforming from a cogeneration to a more utility organization with majority of expansion occurring in developing economies. Other factor that current model was not able to include was the risk of devaluation of currency in developing economies which resulted in significant losses due to the inability of the company to survive its international debt obligations.
Expansion in developing economies also exposed the business to political risk where the policies change erratically with changes in government. Hence we see that the geographical diversification of business causes asymmetrical risk to increase causing bimodal behavior in the result.
Project financing becomes less recommendable as a symmetrical risk becomes more manifest. This constitutes a problem for emerging countries where these risks tends to be at the forefront.ICP Analysis Laboratories Inductively Coupled Plasma, or ICP analysis, is a powerful chemical analysis method which can be used to identify both trace amounts and major concentrations of nearly all elements related to metallic samples.
Power analysis attacks against the AES algorithms have also been studied . The case, there are eight tables where n = m = 4. Thus, for standard mode Serpent, there is Securing the AES Finalists Against Power Analysis Attacks AES further argued that because the Kivalina complaint alleges that AES “knew or should have known” that generation of electricity would result in the environmental harm suffered by Kivalina, the complaint alleges, at least in the alternative, that the consequences of AES’s intentional carbon dioxide emissions were unintended.
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