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Vehicle(SPV)
SPV
SPV
When a corporation, call it the
sponsor of the SPV, wants to achieve
a particular purpose, for example,
funding, by isolating an activity, asset
or operation from the rest of the
sponsor's business, it hives off such
an asset, activity or operation into
the vehicle by forming it as a special
purpose vehicle.
This isolation is important for
external investors whose interest
is backed by such hived-off
assets, etc, but who are not
affected by the generic business
risks of the entity of the
originating entity.
SPV
SPV
Thus SPVs are housing devices - they house
the assets transferred by the originating
entity in a legal outfit, which is legally
distanced from the originator, and yet self-
sustained as not to be treated as the baby of
the originator.
An SPV is a firm, which embodies a financial
contract. SPVs are originally used to isolate
financial risk. A special purpose vehicle is
being set up to finance a large project
without putting the entire firm at
risk.(Non/Limited Recourse)
The importance of infrastructure for rapid
economic development cannot be overstated.
The most glaring deficit in India is the
infrastructure deficit. However, there are many
infrastructure projects that are financially
viable but, in the current situation, face
difficulties in raising resources. Therefore, it is
imperative that such projects may be funded
through a financial SPV, as proposed by the
finance ministry.
When large infrastructure projects are
implemented, the foreign exchange
resources could be drawn for financing
necessary imports. Accordingly, the
finance ministry proposed to establish
an SPV to finance infrastructure
projects in specified sectors during the
Budget. Roads, ports, airports and
tourism would be sectors that can
benefit most from the SPV.
The projects are to be appraised
by an inter-institutional group of
banks and financial institutions.
The SPV will lend funds, especially
debt of longer term maturity,
directly to the eligible projects to
supplement other loans from
banks and financial institutions.