PRESENTED BY: RICHA PRIYA (16) TEJASHREE THORAT (46) ANKITA PARAB (59) JATIN DALVI (05) PRITESH

MANIAR (10) MAKARAND SINKAR (36) AMITVIKRAM TORASKAR (47)

ROADMAP

PROJECT FINANCE TECHNICAL APPRAISAL COMMERCIAL APPRAISAL FINANCIAL APPRAISAL ECONOMIC APPRAISAL APPRAISAL OF MANAGEMENT DISBURSEMENT, SUPERVISION & FOLLOW- UP

WHAT IS A PROJECT

NEED FOR PROJECT FINANCE

DEMAND INNOVATIVE FINANCIAL STRUCTURES

BUILDING CREDIBLE STRUCTURES

COMMONLY USED FIELDS

PROJECT FINANCE
Project finance is the financing of long-term infrastructure and industrial projects based upon a complex financial structure where project debt and equity are used to finance the project, rather than the balance sheets of project sponsors.

SPONSORS AND SYNDICATE OF BANK NON RE-COURSE LOANS SPECIAL PURPOSE ENTITY

PROCESS OF PROJECT FINANCE

SPONSOR 2 SPONSOR 1 SPONSOR 3

R LENDER

LOAN REPAYMENT

PROJECT COMPANY (SPE)

CONCESSION CONTRACT

GOVERNMENT

SERVICES

USER

MULTIPLE SPONSORS
FINANCIAL OR TECHNICAL CAPABILITIES RISKS ECONOMIES OF SCALE MAXIMUM EQUITY POSITION

CONTRACTUAL RELATIONSHIP

RISK IDENTIFICATION AND ALLOCATION RELATIONSHIP BETWEEN MULTIPLE PARTIES DISTRIBUTION OF RISKS AND PROFITS

Direct Finance Project Finance

DIRECT FINANCE V/S PROJECT FINANCE

CRITERIA DIRECT FINANCE
y

PROJECT FINANCE
ASSETS AND CASH FLOWS ARE SEGREGATED FROM SPONSORS OTHER ACTIVITIES

ORGANISATION
y

ORGANISED IN y CORPORATE FORM CASH FLOW FROM DIFFERENT ASSETS/PROJECTS ARE MIXED RISK DIVERSIFIED ACROSS SPONSORS PORTFOLIO OF ASSETS
y

RISK ALLOCATION

CONTRACTUAL AGREEMENTS REDISTRIBUTE THE PROJECT RELATED RISKS

DIRECT FINANCE V/S PROJECT FINANCE

CRITERIA
y

DIRECT FINANCE
FINANCING CAN BE y ARRANGED QUICKLY INTERNALLY GENERATED FUNDS CAN y BE USED TO FINANCE OTHER PROJECTS

PROJECT FINANCE
HIGHER FINANCING COSTS AND TIME CONSUMING INTERNALLY GENERATED FUNDS CAN BE RESERVED FOR PROJECTS ITSELF MANAGERS HAVE LIMITED DISCRETION BY CONTRACT FREE CASH FLOW MUST BE DISTRIBUTED AMONG THE EQUITY INVESTORS

FINANCIAL FLEXIBILITY y

FREE CASH FLOW

UNDER MANAGERS DISCRETION CASH FLOW IS MIX AND THEN ALLOCATED AS PER THE CORPORATE POLICY

y y

PROJECT FINANCE STEPS INVOLVED

PROJECT IDENTIFICATION

PROJECT SELECTION

PROJECT APPRAISAL

PROJECT IMPLEMENTATION

FOLLOW UP

PROJECT APPRAISAL
TECHNICAL APPRAISAL

COMMERCIAL APPRAISAL

FINANCIAL APPRAISAL

ECONOMIC APPRAISAL

APPRAISAL OF MANAGEMENT

TECHNICAL APPRAISAL

SIZE OF THE PLANT

ARRANGEMENT OF TECHNICAL KNOW HOW

PRODUCT MIX / RANGE

SELECTION OF PLANT AND MACHINERY

PROCUREMENT OF PLANT AND MACHINERY PLANT LAYOUT LOCATION OF THE PROJECT

TECHNICAL PROCESS

TECHNICAL APPRAISAL

SCHEDULE OF PROJECT IMPLEMENTATION

TECHNICAL PROCESS / TECHNOLOGY

COMPARISON OF CONVENTIONAL AND ALTERNATIVES AVAILABLE DEPENDS ON QUALITY, COST, END USE ADOPTION FEASIBILITY NEWBIE TECHNOLOGY

ARRANGEMENTS FOR TECHNICAL KNOW - HOW

FOREIGN COLLABORATORS

RECRUITMENT OF SUITABLE TECHNICAL PERSONNEL

CONSULTANCY ORGANIZATIONS

SOURCES

PROMOTERS KNOWLEDGE AND EXPERIENCE

MACHINERY SUPPLIERS

SIZE OF THE PLANT

CAN BE EXPRESSED WITH RESPECT TO : A. OUTPUT B. INPUT C. NO. OF MACHINES USED ECONOMIC SIZE OF THE PLANT FUTURE PROSPECTS

PRODUCT MIX / PRODUCT RANGE

PRODUCT FLEXIBILITY

DEMAND FLUCTUATIONS

SELECTION OF PLANT AND MACHINERY

DEPENDS ON MANUFACTURING PROCESS AND SIZE PROPER BALANCE OF CAPACITY UTILITY EQUIPMENTS STANDBY ARRANGEMENTS

PROCUREMENT OF PLANT AND MACHINERY

ESTIMATION OF COST SOURCES: - ON A TURNKEY BASIS - PLACING ORDERS WITH DIFFERENT MACHINERY SUPPLIERS - THROUGH AGENTS - FORMAL QUOTATIONS GUARANTEES AND MAINTENANCE CONTRACT SECOND HAND EQUIPMENT - DEPUTING AN ENGINEER

PLANT LAYOUT
REDUCES MANUFACTURING COST TYPES - LINE LAYOUT - BATCH LAYOUT - GROUP/PRODUCT LAYOUT IMPORTANCE TO THE PROJECT

LOCATION OF THE PROJECT

LAND PROXIMITY OF RAW MATERIAL PROXIMITY OF THE MARKET AVAILABILITY OF LABOUR UTILITIES EFFLUENT DISPOSAL TRANSPORTATION AND COMMUNICATION FACILITIES LOCATION OF INDUSTRIES IN BACKWARD AREAS

SCHEDULE OF THE PROJECT IMPLEMENTATION

CPM AND PERT EVALUATION OF IMPLEMENTATION SCHEDULE

IMPLICATIONS
EXPLORING WAYS TO DO THE PROJECT. SELECTION BEST ALTERNATIVE FOR COST MINIMIZATION. FEASIBILITY OF THE PROJECT TO PRODUCE GOODS.

COMMERCIAL APPRAISAL

APPRAISAL OF DEMAND
COMMERCIAL RISK DEMAND- SUPPLY APPRAISAL IMPORT SUBSTITUTION METHOD PAST TREND METHOD END USE METHOD CORRELATION & REGRESSION EXPORT MARKETS MARKET STRUCTURE

APPRAISAL OF DEMAND
DEPTH OF COMPETITION PRICING LIFE CYCLE OF PRODUCT DISTRIBUTION CHANNELS OTHER FACTORS

FINANCIAL APPRAISAL

CAPITAL COST OF PROJECT

LAND & SITE DEVELOPMENT BUILDINGS PLANTS & MACHINERY
IMPORTED PLANTS INDIGENOUS PLANTS

ENGINEERING & CONSULTANCY FEES

CAPITAL COST OF PROJECT

MISCELLANEOUS FIXED ASSETS PRELIMINARY & PRE- OPERATIVE EXPENSES PROVISION FOR CONTINGENCIES MARGIN MONEY FOR WORKING CAPITAL

SOURCES OF FINANCE
ISSUE OF ORDINARY/PREFERENCE SHARES ISSUE OF SECURED DEBENTURES ISSUE OF CONVERTIBLE DEBENTURES/BONDS EXTERNAL COMMERCIAL BORROWINGS DEFERRED CREDIT LEASING FINANCE, ETC..

FINANCIAL PROJECTIONS
PROFITABILITY ESTIMATES CASH FLOW ESTIMATES PROJECTED BALANCE SHEETS SENSITIVITY ANALYSIS

PROFITABILITY ESTIMATES
ESTIMATION OF EXPECTED SALES REALIZATIONS AND EXPENSES TO BE INCURRED BORROWER TEMPTED TO GIVE A BRIGHT PICTURE BASIS OF VARIOUS FIGURES SHOULD BE ASCERTAINED

ESTIMATED PROFIT

CASH FLOW ESTIMATES

TO ENSURE LIQUIDITY OF THE PROJECT NET PROFIT IS SHOWN AS SOURCE OF FUNDS LEVEL OF PRODUCTION, CL AND CA PRESUMED TO REMAIN IN SAME PROPORTION USE OF FUNDS SHOULD BE IN ACCORDANCE WITH REQUIREMENTS OF THE PROJECT INDICATES NET CASH SURPLUS OR DEFICIT

PROJECTED BALANCE SHEETS

PREPARED ON THE BASIS OF PROFITABILITY ESTIMATES AND CASH FLOW ESTIMATES PROJECTED BALANCE SHEET IS A SNAP SHOT OF THE FINANCIAL POSITION

SENSITIVITY ANALYSIS
FINANCIAL PROJECTIONS IMPORTANT TO TEST THE
VIABILITY OF THE PROJECT

SEPARATE PROFITABILITY ESTIMATES FOR EXPECTED

CHANGES IN SENSITIVE AREAS

INDICATES THE DEGREE OF CUSHION IN PROFITABILITY

TO WITHSTAND CHANGES

RATIO ANALYSIS
INDICATES THE RELATIONSHIP BETWEEN TWO OR MORE VARIABLES RATIOS CAN BE CALCULATED FOR THE PAST AS WELL AS FUTURE SIGNIFICANT WHEN COMPARED TO AN APPROPRIATE STANDARD

TYPES OF RATIOS
I. II. LOAN SAFETY OR APPRAISAL RATIOS PROFITABILITY RATIOS

III. GROWTH RATIOS IV. TURNOVER RATIOS V. OPERATING RATIOS

RATIOS VITAL FOR LENDING INSTITUTIONS

DEBT EQUITY RATIO DEBT SERVICE RATIO CURRENT RATIO

BREAK EVEN POINT

DEFINITION BREAD EARNING POINT COST OF PRODUCTION VIZ. F.C & V.C UNIFORM POLICY

FORMULAE FOR B. E. P.
CONTRIBUTION = S.P - V.C B.E.P = _FIXED COST_ CONTRIBUTION

B.E.P= _FIXED COST_ X NO. OF UNITS PRODUCED CONTRIBUTION

FORMULAE FOR B. E. P.
B.E.P= _FIXED COST_ X % OF INSTALLED CAPACITY CONTRIBUTION

B.E.P= _FIXED COST_ X CONTRIBUTION

SALES REALIZATION IN AMT.

B.E.P FOR PROJECT APPRAISAL X

B.E.P = FIXED COST CONTRIBUTION CASH B.E.P

OF

CAPACITY

UTILIZATION

AT WHICH TOTAL CONT. IS ARRIVED AT

WHY B.E.P IN PROJECT FINANCE?

DISCOUNTED CASH FLOW TECHNIQUES

PAY BACK METHOD AVERAGE RATE OF RETURN NET PRESENT VALUE INTERNAL RATE OF RETURN

PAY BACK METHOD

OBJECTIVE ADVANTAGES DISADVANTAGES

AVERAGE RATE OF RETURN

RETURN ON = ORIGINAL INVT.
AVERAGE PROFIT_ ORIGINAL INVT.

RETURN ON = AVERAGE INVT.

AVERAGE PROFIT_ AVERAGE INVT.

NET PRESENT VALUE

NPV = PV OF CASH INFLOWS- PV OF CASH OUTFLOWS PROFITABILITY INDEX= PV OF CASH INFLOWS PV OF CASH OUTFLOWS

INTERNAL RATE OF RETURN

I.R.R. AT LOWER DISC. RATE + DIFFERENCE BET. 2 DISC. RATES X (NPV AT LOWER DISC. RATE/ ABSOLUTE DIFFERENCE BET. NPV AT 2 DISC. RATES) NPV IS ZERO AT THIS POINT

ECONOMIC APPRAISAL

ECONOMIC APPRAISAL
WHAT IS ECONOMIC APPRAISAL? OBJECTIVE OF ECONOMIC APPRAISAL TYPES OF ECONOMIC APPRAISAL -SOCIAL - COST BENEFIT -SOCIAL - COST EFFECTIVE

METHODS OF ECONOMIC APPRAISAL

INTERNAL RATE OF RETURN ECONOMIC RATE OF RETURN DOMESTIC RESOURCE COST

INTERNAL RATE OF RETURN

ECONOMIC RATE OF RETURN

CALCULATED FROM CASH FLOW ESTIMATES

CALCULATED FROM CASH FLOW ESTIMATES

BASED ON MARKET PRICE

BASED ON SHADOW PRICE

 SHOULD BE ABOVE CUT-OFF

 SHOULD BE ABOVE CUT-OFF

DECISION CRITERIA
INTERNAL RATE OF RETURN HIGH HIGH HIGH AVG. LOW LOW LOW DOMESTIC RESOURCE COST DECISION LOW AVG. HIGH AVG. LOW AVG. HIGH VERY GOOD GOOD CONSIDER SATISFACTORY SATISFACTORY CONSIDER REJECT

APPRAISAL OF MANAGEMENT

APPRAISAL OF MANAGEMENT
BASED ON{ 1)EXISTING ENTREPRENEUR PAST PERFORMANCE/RECORD. PAST BALANCE-SHEET & P/L ACCOUNT. CREDIT RECORD WITH BANKERS DIVIDEND POLICY. 2)NEW ENTREPRENEUR REGULAR CONTACT WITH APPRAISING OFFICER. INTERVIEW 2-3 TIMES

UNITS APPROACHING FOR ASSISTANCE

PROPRIETARY CONCERN. PARTNERSHIP FIRM. CORPORATE SECTORS.

CHECK-LIST FOR PROMOTING PROJECT

EXCELLENT(20) 1.CHARACTER HONEST & KEEP HIS WORDS HIGHLY{ONLY SOURCE OF INCOME ENOUGH GOOD(12) MAKE SINCERE EFFORTS HAS OTHER SOURCE OF INCOME SUFFICIENT POOR(4) DOES NOT BOTHER MUCH ABT. WORDS PART-TIME

2.INVOLVEMENT

3.FINANCIAL RESOURCES 4.INITIATIVES

MAY BORROW

HIGHLY ALERT TO OPPORTUNITIES TALK FRANKLY ABT THE WEAK POINTS. BELIEVES STRONGLY IN HIMSELF

PERFORMS WORK WITH GUIDANCE PREPARED TO TALK ON WEAK POINTS. HAS FAITH IN HIS ABILITIES.

WAITS FOR GUIDANCE

5.FRANKNESS

AVOID TALKING ON WEAK POINTS. BELIEVES IN LUCK.

6.SELF-ABILITIES

DISBURSEMENT,SUPERVISION & FOLLOW-UP

DISBURSEMENT
INFORMATION FURNISHED BY THE BORROWING UNIT TO THE TERM LENDING INSTITUTIONS PHYSICAL PROGRESS FINANCIAL PROGRESS

PROMOTERS CONTRIBUTION CERTIFIED COPY OF RESOLUTION OPINION FROM COMPANYS LEGAL ADVISER CERTIFICATE FROM AUDITORS LETTER FROM BORROWING COMPANYS BANK

BRIDGING FINANCE

LIQUIDITY CONSTRAINT

COMPLIANCE WITH CERTAIN CONDITIONS

UNDERWRITING
POINTS TO BE CHECKED BEFORE ISSUING FINAL LETTER CONSENT FROM SEBI CONSENT LETTERS FROM BROKERSu BOARDS CONSENT LISTING REQUIRMENTS

SUPERVISION AND FOLLOW-UP

METHODS FOR SUPERVISION AND FOLLOW-UP SCRUTINY OF PROGRESS REPORTS ANALYSIS OF ANNUAL FINANACIAL STATEMENTS VISIT/INSPECTION APPOINTMENT OF NOMINEE DIRECTORS REGULATORY CONTROL DISCUSSION WITH THE MANAGEMENT

ADVANTAGES OF PROJECT FINANCE

ALLOWS PROMOTERS TO UNDERTAKE TRADITIONAL PROJECTS LIMITS FINANCIAL RISKS MORE DEBT CAN BE RAISED PROVIDES WITH STRONGER INCENTIVES CAREFUL TECHNICAL AND ECONOMIC REVIEW

DISADVANTAGES OF PROJECT FINANCE

MORE COMPLEX VERY EXPENSIVE NEGOTIATIONS CONTENTIOUS DOCUMENTATION REQUIRED COMPLEX AND LENGTHY

THANK YOU