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What is the role of Special Purpose Vehicle / Entity (SPV / SPE) in Project Financing?

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Question added by Shahbaz Hayder , Group Head of Finance , Sharif Group of Companies
Date Posted: 2015/04/23
Frank Mwansa
by Frank Mwansa , ACCOUNTING LECTURER , FREELANCER

        *  A special purpose vehicle/entity is also called a ' bankruptcy- remote entity whose role are limited to the acquisition and financing of specific assets. The  SPV  is normally a subsidiary company with an asset and liability structure and legal status that makes its obligations secure even when the parent company goes bankrupt.

        *  The SPV/E  are normally used to isolate financial risk.

        *    An entity can use a special purpose vehicle /entity to finance a large project without putting the entire firm at risk.

        *    However, the problem is due to accounting loopholes, these vehicles can become a means for Chief financial officers to conceal debit. Normally , it looks like the company do not have a liability when in fact  they do.  Looking at Enron bankruptcy, if things go  wrong, the results can be very bad.

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