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Chap 1: Introduction
Project financing is an innovative and timely financing technique that has been used on many high-profile corporate projects, including uro Disneyland and the urotunnel. mploying a carefully engineered financing mi!, it has long been used to fund large-scale natural resource projects, from pipelines and refineries to electric-generating facilities and hydro-electric projects. "ncreasingly, project financing is emerging as the preferred alternative to conventional methods of financing infrastructure and other large-scale projects worldwide. Project #inancing discipline includes understanding the rationale for project financing, how to prepare the financial plan, assess the ris$s, design the financing mi!, and raise the funds. "n addition, one must understand the cogent analyses of why some project financing plans have succeeded while others have failed. % $nowledge-base is required regarding the design of contractual arrangements to support project financing& issues for the host government legislative provisions, public'private infrastructure partnerships, public'private financing structures& credit requirements of lenders, and how to determine the project(s borrowing capacity& how to analyze cash flow projections and use them to measure e!pected rates of return& ta! and accounting considerations& and analytical techniques to validate the project(s feasibility Project finance is different from traditional forms of finance because the credit ris$ associated with the borrower is not as important as in an ordinary loan transaction& what is most important is the identification, analysis, allocation and management of every ris$ associated with the project. )he purpose of this project is to e!plain, in a brief and general way, the manner in which ris$s are approached by financiers in a project finance transaction. *uch ris$ minimization lies at the heart of project finance. "n a no recourse or limited recourse project financing, the ris$s for a financier are great. *ince the loan can only be repaid when the project is operational, if a major part of the

Downloaded from a2zmba.blogspot.com project fails, the financiers are li$ely to lose a substantial amount of money. )he assets that remain are usually highly specialized and possibly in a remote location. "f saleable, they may have little value outside the project. )herefore, it is not surprising that financiers, and their advisers, go to substantial efforts to ensure that the ris$s associated with the project are reduced or eliminated as far as possible. "t is also not surprising that because of the ris$s involved, the cost of such finance is generally higher and it is more time consuming for such finance to be provided. Project finance is the financing of long-term infrastaructure and industrial projects based upon a comple! financial structure where project debt and equity are used to finance the project. +sually, a project financing scheme involves a number of equity investors, $nown as sponsors, as well as a syndicate of ban$s which provide loans to the operation. )he loans are most commonly non-recourse loans, which are secured by the project itself and paid entirely from its cash flow, rather than from the general assets or creditworthiness of the project sponsors. )he financing is typically secured by all of the project assets, including the revenue-producing contracts. Project lenders are given a lien on all of these assets, and are able to assume control of a project if the project company has difficulties complying with the loan terms. ,enerally, a special purpose entity is created for each project, thereby shielding other assets owned by a project sponsor from the detrimental effects of a project failure. %s a special purpose entity, the project company has no assets other than the project. -apital contribution commitments by the owners of the project company are sometimes necessary to ensure that the project is financially sound. Project finance is often more complicated than alternative financing methods. "t is most commonly used in the mining, transportation, telecommunication and public utility industries. Risk identification and allocation is a key component of project finance . % project may be subject to a number of technical, environmental, economic and political ris$s, particularly in developing countries and emerging mar$ets. #inancial institutions and project sponsors may conclude that the ris$s inherent in project development and operation are unacceptable .unfinanceable/. )o cope with these ris$s, project sponsors in these

Downloaded from a2zmba.blogspot.com industries .such as power plants or railway lines/ are generally completed by a number of specialist companies operating in a contractual networ$ with each other that allocates ris$ in a way that allows financing to ta$e place. )he various patterns of implementation are sometimes referred to as 0project delivery methods.0 )he financing of these projects must also be distributed among multiple parties, so as to distribute the ris$ associated with the project while simultaneously ensuring profits for each party involved.

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Chap 2: AN OVERVIEW
2.1 Banking Sector )here have been major structural changes in the financial sector since ban$ing sector reforms were introduced in "ndia in 1222. *ince then 3an$s have been lending aggressively providing funds towards infrastructure sector. 4ajor policy measures include phased reductions in statutory pre-emption li$e cash reserve and statutory liquidity requirements and deregulation of interest rates on deposits and lending, e!cept for a select segment. )he diversification of ownership of ban$ing institutions is yet another feature which has enabled private shareholding in the public sector ban$s, through listing on the stoc$ e!changes, arising from dilution of the ,overnment ownership. #oreign direct investment in the private sector ban$s is now allowed up to 56 per cent. )he co-e!istence of the public sector, private sector and the foreign ban$s has generated competition in the ban$ing sector leading to a significant improvement in efficiency and customer service. )he share of private and foreign ban$s in total assets increased to 71.8 per cent at end-4arch 2995 from 25.: per cent at end-4arch 299: and less than 19.9 per cent at the inception of reforms.

)he nationalized ban$s have more branches than any other types of ban$s in "ndia. ;ow there are about 77,:25 3ranches in "ndia, as on 4arch 2998. "nvestments of scheduled commercial ban$s .*-3s/ also saw an increase from <s =,96,122 crore in 4arch 2998 to <s =,67,9=1 crore in the same month of 299:. "ndia(s retail-ban$ing assets are e!pected to grow at the rate of 1=> a year over the ne!t four years .299:-2919/. <etail loan to drive the growth of retail ban$ing in future. ?ousing loan account for major chun$ of retail loan.

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2.2 %n @verview on +nion 3an$ @f "ndia

+nion 3an$ of "ndia was inaugurated by the father of the nation A 4ohandas Baramchand ,andhi. "t commenced operations in the year 1229. +nion 3an$ has offered vast and varied services to its entire valuable clientele ta$ing care of their needs. )oday, with its efficient customer service, consistent profitability C growth, adoption of new technologies and value added services, +nion 3an$ truly lives up to the image of, ,ood People to ban$ with . %nticipative ban$ing is an integral ingredient of value-based services. )his ability to gauge the customer(s needs long before he realizes, best reduces the gap between e!pectance and deliverance 4anpower is the $ey factor for the success of any organization. +nion 3an$ has a dedicated family of about 2:,999 qualified ' s$illed employees who will and always will be delighted to e!tend their services to the customers with heartfelt efforts )he 3an$ is a Public *ector +nit with 88.67> *hare -apital held by the ,overnment of "ndia. )he 3an$ came out with its "nitial Public @ffer ."P@/ in %ugust 29, 2992 and #ollow on Public @ffer in #ebruary 299:. Presently 66.85 > of *hare -apital is presently held by "nstitutions, "ndividuals and @thers. )he 3an$ has over the years earned the reputation of being a techno-savvy 3an$ and is one of the front runners amongst public sector ban$ in the field of technology. "t is one of the pioneer public sector ban$s, which launched -ore 3an$ing *olution in 2992. %s of *eptember 2998, more than 512 branches'e!tension counters of 3an$ are networ$ed under -ore 3an$ing *olution, powered with the centralized technology platform, the 3an$ has launched multiple lectronic Delivery -hannels and has installed nearly 6:2 networ$ed %)4s. @nline )ele ban$ing facility is available to all its -ore 3an$ing customers. )he multi facility versatile "nternet 3an$ing *olution provides e!tensive information in addition to the on line transaction facility to both individuals and corporate

Downloaded from a2zmba.blogspot.com ban$ing with the -ore 3an$ing branches of the 3an$. "n addition to regular ban$ing facilities, today customer can also avail variety of value added services li$e cash management service, insurance, mutual funds, Demat from the ban$. )oday there are more than 2:,999 employees in +nion 3an$ of "ndia. +3" has been ran$ed at 8th position among the nationalized ban$ in "ndia. @verview on ban$s deposits and advances

"tems
Deposits Investments

2997-96

2996-98

2998-9:

299:-95 2995-9=

%dvances

2.2.1

Rationa!e "or the #tud$

@ffering credit is an operation fraught with ris$. 3efore offering credit to an organization, its financial health must be analyzed. -redit should be disbursed only after ascertaining satisfactory financial performance. 3ased on the financial health of an organization, ban$s assign credit ratings. )hese credit ratings are used to fi! the interest rate and quantum of installment. )his study aims to analyze the credit health of organizations that approach +nion 3an$ of "ndia for foreign e!change credit facilities. %fter analyzing credit health, the credit rating is determined. @n the basis of credit rating, the interest rate guidelines circular is consulted to fi! a price for the credit facilities i.e. determine the interest rate. 2.2.2 Credit di#%ur#e&ent at 'nion Bank o" India

)his project was underta$en at the "ndustrial #inance 3ranch of +nion 3an$ of "ndia, at the -redit Department. #inancial requirements for Project #inance and Dor$ing -apital purposes are ta$en care of at the -redit Department. -ompanies that intend to see$ credit facilities approach the ban$. Primarily, credit is required for following purposesE1. Dor$ing capital finance 6

Downloaded from a2zmba.blogspot.com 2. )erm loan for mega projects 7. non fund based Fimits Fi$e Fetter of ,uarantee, Fetter of -redit -ompanies present audited balance sheets of the current and previous years. )hese are used to determine the financial health, turnover trends and rise and fall of profitability. )hen credit rating is done. )he financial health and credit rating are theoretical methods for determining the right interest rate. ?owever, in practice, ban$s consider other factors such as history with client, mar$et reputation and future benefits with clients. )hus, a difference e!ists between theory and practice.
2.2.( O%)ecti*e# o" the pro)ect

)o assess the financial health of organizations that approach +nion 3an$ of "ndia for credit for import e!port purposes. )his would entail underta$ing of the following proceduresE %nalysis of past and present financial statements %nalysis of 3alance *heet %nalysis of -ash #low *tatements !amination of Profitability statements !amination of projected financial statements !amination of -4% data

)o assess the suitability of the company for disbursement of credit. )his would involve the following actionsE +se of credit rating charts valuation of management ris$ valuation of financial ris$ valuation of mar$et-industry ris$ valuation of the facility valuation of compliance of sanction terms

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-alculation of credit rating

Determination of interest rateE )his would entail the following sequence of actions. -ollect data regarding financial health evaluation ;oting down of credit rating <eferencing the ban$sG interest rate guidelines circular -hoosing the interest rate from the circular on the basis of financial health and credit rating

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Chap 3 : +er& ,oan A##e#&ent

7.1 *teps in term loan processing

*ubmission of Project <eport along with the <equest Fetter .

-arrying out due diligence Preparing -redit <eport

Determining "nterest <ate

Preparing and submission of )erm *heet

If not approved

if approved

Preparation of proposal

*ubmission of Proposal to designated authority If No queries raised If queries raised

Project <ejected

*anction of proposal on various )erms C -ondition

*olve the queries

-ommunication of *anction )erms C -ondition

%c$nowledgement of *anction )erms C -ondition %pplication to comply with *anction )erms C -ondition C e!ecution of Foan Documents Disbursement

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7.1 -@;D+-)";, # %*"3"F")H *)+DH

)he success of a feasibility study is based on the careful identification and assessment of all of the important issues for business success. % detailed Project <eport is submitted by an enterpreneur , prepared by a approved agency or a consultancy organisation. *uch report provides indepth details of the project requesting finance. "t includes the technical aspects, 4anagerial %spect, the 4ar$et -ondition and Projected performance of the company. "t is neccessay for the appraising officer to cross chec$ the information provided in the report for dtermining the worhiness of the project. -ro)ect .etai!#: .e"inition o" the pro)ect and a!ternati*e #cenario# and &ode!#.

Fist the type and quality of product.s/ or service.s/ to be mar$eted. @utline the general business model .ie. how the business will ma$e money/. "nclude the technical processes, size, location, $ind of inputs *pecify the time horizon from the time the project is initiated until it is up and running at capacity.

Re!ation#hip to the #urrounding geographica! area.

"dentifies economic and social impact on local communities. "dentifies environmental impact on the surrounding area.

/AR0E+ 1EASIBI,I+2 Indu#tr$ de#cription.

Describes the size and scope of the industry, mar$et and'or mar$et segment.s/. stimates the future direction of the industry, mar$et and'or mar$et segment.s/.

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Describes the nature of the industry, mar$et and'or mar$et segment.s/ .stable or going through rapid change and restructuring/.

"dentifies the life-cycle of the industry, mar$et and'or mar$et segment.s/ .emerging, mature/

Indu#tr$ Co&petiti*ene##.

"nvestigates industry concentration .few large producers or many small producers/.

%nalyzes major competitors. !plores barriers'ease of entry of competitors into the mar$et or industry. Determines concentration and competitiveness of input suppliers and

product'service buyers.

"dentifies price competitiveness of product'service.

/arket -otentia!.

Dill the product be sold into a commodity or differentiated product'service mar$etI

"dentifies the demand and usage trends of the mar$et or mar$et segment in which the proposed product or service will participate.

!amines the potential for emerging, niche or segmented mar$et opportunities. !plores the opportunity and potential for a 0branded product0. %ssesses estimated mar$et usage and potential share of the mar$et or mar$et segment.

Sa!e# -ro)ection.

stimates sales or usage. "dentifies and assess the accuracy of the underlying assumptions in the sales projection.

Projects sales under various assumptions .ie. selling prices, services provided/. 11

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Acce## to /arket Out!et#.

"dentifies the potential buyers of the product'service and the associated mar$eting costs.

"nvestigates the product'service distribution system and the costs involved. OR3ANI4A+IONA,5/ANA3ERIA, 1EASIBI,I+2 Bu#ine## #tructure.

@utline alternative business model.s/ .how the business will ma$e money/. "dentify the proposed legal structure of the business. "dentify any potential joint venture partners, alliances or other important sta$eholders.

"dentify availability of s$illed and e!perienced business managers. "dentify availability of consultants and service providers with the s$ills needed to realize the project, including legal, accounting, industry e!perts, etc.

@utline the governance, lines of authority and decision ma$ing structure.

/anageria! -er#onne! 4anagerial Personnel play a $ey role in directing the wor$ing of the company. "t is important for an organisation to have a pool of eficient personnel who bear the capacity to bail the company out from crisis situation and wor$ towards optimum utlisation of organisational resources. *uch capacity of the personnel can be determined by having complete details on following $ey aspectsE 4ar$et reputation on the promoter ' management of the company ?ands on e!perience of the management personnel in the industry ' 3usiness managed by qualified personnel

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Downloaded from a2zmba.blogspot.com %bility of the promoters ' management to bail out the company in case of crisis .for e!ample, this could be derived from a strong group company/ Decision ma$ing A "s it concentrated I @rganisation structure ' *uccession planning ' Fabour relations "s any group company in default ' %ny Directors on <3"Gs negative list ' 3orrowerGs trac$-record in honouring financial commitment Fength of relationship with the ban$

+EC6NICA, 1EASIBI,I+2 )echnology plays an important role in maintaining a competitive position in this highly competitive mar$et conditions. "nvesting in the proper technology is the $ey to success it irrespective of size of business thus for achieving its projected performance, it is important for it to have sound technological bac$ground. *uch technical competence of the project can be determined by having detailed study done on following $ey aspectsE .eter&ining 1aci!it$ Need#.

stimates the size and type of production facilities. "nvestigates the need for related buildings, equipment, rolling-stoc$

Suita%i!it$ o" -roduction +echno!og$.

"nvestigates and compare technology providers. Determines reliability and competitiveness of technology .proven or unproven, state-of-the-art/.

"dentifies limitations or constraints of technology.

A*ai!a%i!it$ and Suita%i!it$ o" ,ocation.

%ccess to mar$ets. %ccess to raw materials. %ccess to transportation. 13

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%ccess to a qualified labor pool. %ccess to production inputs .electricity, natural gas, water, etc./. "nvestigate emissions potential. %nalyze environmental impact. "dentifies regulatory requirements. !plores economic development incentives. !plores community receptiveness to having the business located there.

Ra7 &ateria!#.

stimates the amount of raw materials needed. "nvestigates the current and future availability and access to raw materials. %ssesses the quality and cost of raw materials and mar$ets of easily substituted inputs.

Other input#.

"nvestigates the availability of labor including wage rates, s$ill level, etc. %ssesses the potential to access and attract qualified management personnel.

1INANCIA, 1EASIBI,I+2 E#ti&ate the tota! capita! re8uire&ent#.

%ssesses the capital needs of the business project and how these needs will be met.

stimates capital requirements for facilities, equipment and inventories. Determines replacement capital requirements and timing for facilities and equipment.

stimates wor$ing capital needs. stimates start-up capital needs until revenues are realized at full capacity.

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stimates

contingency

capital

needs

.construction

delays,

technology

malfunction, mar$et access delays, etc.

stimates other capital needs. stimated equity and credit needs. "dentifies alternative equity sources and capital availability -- producers, local investors, angel investors, venture capitalists, etc.

"dentifies and assess alternative credit sources -- ban$s, government .ie. direct loans or loan guarantees/, grants, local and state economic development incentives.

%ssesses e!pected financing needs and alternative sources -- interest rates, terms, conditions, covenants, liens, etc.

stablishes debt-to-equity levels.

Budget# e9pected co#t# and return# o" *ariou# a!ternati*e#.

stimates e!pected costs and revenue. stimates the profit margin and e!pected net profit. stimates the sales or usage needed to brea$-even. stimates the returns under various production, price and sales levels. )his may involve identifying 0best case0, 0typical0, and 0worst case0 scenarios or more sophisticated analysis li$e a 4onte -arlo simulation.

%ssesses the reliability of the underlying assumptions of the financial analysis .prices, production, efficiencies, mar$et access, mar$et penetration, etc./

-reates a benchmar$ against industry averages and'or competitors .cost, margin, profits, <@", etc./.

"dentifies limitations or constraints of the economic analysis. Determines project e!pected cash flow during the start-up period. "dentifies project an e!pected income statement, balance sheet, etc. when reaching full operation.

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Downloaded from a2zmba.blogspot.com Stud$ Conc!u#ion# )he study conclusions contain the information you will use for deciding whether to proceed business. )he major categories this section should include areE

"dentify and describe alternative business scenarios and models. -ompare and contrast the alternatives based on their business viability. -ompare and contrast the alternatives based on the goals of the producer group. @utline criteria for decision ma$ing among alternatives.

Ne9t Step %fter the feasibility study has been completed and presented, a carefully study and analysis the conclusions and underlying assumptions. ;e!t, you will be faced with deciding which course of action to pursue. Potential courses of action includeE

-hoosing the most viable business model, for investment "dentifying additional scenarios for further study. Deciding that a viable business opportunity is not available and moving to end the business assessment process.

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7.2 -< D") < P@<) %;D -< D") <%)";,

)he credit report is an important determinant of an individual(s financial credibility. )hey are used by lenders to judge a person(s creditworthiness. )hey also help the person concerned to narrow down on the financial problem areas. -redit report is a document, which comprises detailed information about the credit payment history of an applicant. "t is mostly used by the lenders to determine the credit worthiness of an applicant. )he business credit reports provide information on the bac$ground of a company. )his assists one to ta$e crucial business related decisions. People can also assess the amount of business ris$ associated with a company and then decide whether they would be comfortable in providing them with credit facilities. )he degree of interest that would be shown by investors in their company can also be gauged from the business credit reports as they can get an idea of the conception of their customers regarding themselves. *ince these records are updated at regular intervals of time they enable people to identify the ris$ levels associated with a business as well as its future. )hese reports also allow businesses to get detailed information about the financial status of business partners and suppliers.

Dhat "s % -orporate -redit <atingI

<atings can be assigned to short-term and long-term debt obligations as well as securities, loans, preferred stoc$ and insurance companies. Fong-term credit ratings tend to be more indicative of a country(s investment surroundings and'or a company(s ability to honor its debt responsibilities. . )he ratings therefore assess an entity(s ability to pay debts. )here are various organization who perform credit rating for various business organization. +nion 3an$ of "ndia follows a finely defined -redit <ating 4odel for assessing the creditworthiness of the applicant. )he credit rating model asses various aspects of the projects and assigns scores against them thereby determining the ris$ level involved with the project. "t is divided in #our *ectionsE 17

Downloaded from a2zmba.blogspot.com 1. <ating of the 3orrower

#inancial <is$ 4anagement <is$

2. 4ar$et -ondition' Demand *ituation 7. <ating of the #acility 6. 3usiness -onsideration 8. -ash #low related parameters 1/ <ating of the 3orrowerE )his part of credit rating model deals with assessing the financial and managerial ability of the borrower. )he financial ability of the firm is derived by calculating ratios that determine the short term and long term financial position of the firm *hort term ratios include Current Ratio, determines the liquidity position of the company over a period of one year. )he current ratio is an indication of a firm(s mar$et liquidity and ability to meet creditor(s demands. "t is e!cess of current assets over current liability. "f current liabilities e!ceed current assets .the current ratio is below 1/, then the company may have problems meeting its short-term obligations. "f the current ratio is too high, then the company may not be efficiently using its current assets. %ccording to the guidelines given to +3" the ideal level is at 1.77E1 however the acceptable level is at 1.15E1. ?owever at times current ratio may not be a true indicator, the current ratio for road projects is very high but this does not indicate that the company is not using its assets well but the ratio is high because the activity involves more in dealing with current assets. ?ence it is important for the evaluator to understand the nature of the industry. Fong term ratio include .e%t E8uit$ Ratio is a financial ratio indicating the relative proportion of equity and debt used to finance a company(s assets. )his ratio is also $nown as <is$, ,earing or Feverage. % high debt equity ratio is not preferable by an investor as the company already has aquired high amount of funds from mar$et thereby reducing the investor share over the securities available, inreasing the ris$.

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Downloaded from a2zmba.blogspot.com "t is aslo important for the lender ban$ to assess the firms debt paying capacity over a period. *uch capacity is derived by calculating ratio li$e .e%t Serice Co*erage Ratio minimum acceptable level is 1.89. "t also necessary for the lender to determine the ability of the firm to achieve the projected gro7th by evaluating the projected sales with actuals.?owever such parameter remains non applicable if the business is new. #inacial ris$ evaluation is oly one of the parameter and not thje only parameter for determining the ris$ level. "t is important to evaluate the 4anagement <is$ also while evaluating the ris$ relaing to borrower. "t is the management of the company that acts as guiding force for the firm. )he $ey managerial personnel should bear the capacity to bail out the company frm crisis situation. "norder to remain competitive it is essential to ta$e initiatives. *uch s$ills are developed over years of e!perience, thus for better performance it i# re8uired to ha*e a tea& o" 7e!! 8ua!i"ied and e9pirienced per#onne!. 2: /arket potentia! 5 .e&and Situation % -ompany does not operate in isolation there are various mar$et forces that acts in either favourable or unfavraouble manner towards its performance. )hus the rating would not give true picture if does ta$e mar$et or demand situation in consideration. )he demand supply situation ' mar$et Potential plays an important role in determining the growth level of the company li$e i/ ,e*e! o" co&petition E monolpoly , favourable , unfavourable ii/ #ea#ona!it$ in de&and E affected by short term #ea#ona!it$; long term seasonality or may not be affected by seasonality in demand. iii/Ra7 /ateria! A*ai!a%!it$E iv/,ocationa! I##ue# li$e pro!imity to mar$et, neutral, unfavourable. v/+echno!og$ ie, proven )echnology- not to be changed in immeditate future, technology undergo change, outdated technolgy. vi/Capacit$ uti!i#ation inputs, infratstructureE #avourable,

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Downloaded from a2zmba.blogspot.com (:Rating o" the 1aci!it$: )he company can start functioning only after completing statutary obligations laid down by the governing authority. *uch statutary obligation involves obtaining licenses, permits for ensuring smooth operations. Perparation and *ubmission of #inacial *tatements, *toc$ statements in the standard format within the given time schedule. <:Bu#ine## Con#ideration: )he length of relationship with the ban$ enables the lender to assess the previous performance of the account holder. % good trac$ record acts in the favour of the applicant, however a under perfomance ma$e the lender more vigiliant. )he income value to the ban$ also given due consideration. )hus -redit <ating of the 3usiness ta$es into consideration various aspects that directly or indiretly bears an effects the performance of the business. %fter evaluating the ris$ level involved the lender ban$ decided on lending "nterest <ate. "n +3" they are catagorised in 2 segements 1. lowest <is$ -<-1 2. Fow <is$ -<-2 7. 4edium <is$ -<- 7 6. 4oderate' *atisfatory <is$ -<- 6 8. #air <is$ -<- 8 :. ?igh <is$ -<- : 5. ?igher <is$ -<- 5 =. highest ris$ -<- = 2. ;P% -<- 2 "n +3", a business receiving -redit <ating above level : are not considered good from point of investment and thus are avoided.

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7.7 D ) <4";%)"@; @# ";) < *) <%)

)he interest rate is determined from the interest rate guidelines circular. )his circular is regularly updated to reflect the ban$Gs latest credit policies. )he rupee credit is based on 3PF< and the foreign e!change loans are based on F"3@<. )he guidelines define how much interest rate is to be assigned for a particular credit rating and credit duration. ?owever, credit rating and its use in determining interest rate is a theoretical concept and the ban$ may allow a reduction in interest rate under the following conditionsE 3ood C!ient

)he organization is a long term client and brings good business to the ban$. )he organizationGs actions show that it intends to become a long term customer of the ban$ Banking Con#ortiu& )he organization is see$ing credit from a consortium of ban$s. "n some cases li$e this, the lead ban$ might decide the interest rate and all the member ban$s of the consortium follow this interest rate.

7.6 ) <4 *?

#ollowing a favrouable feasibility chec$, credit rating the ne!t step is preparing term sheet . % )erm *heet is breif document that provides details on aspects li$eE

%ccount Details #inancial highlights for immediate previous two audited years and projection for proceeding year ;ature of Project -ost of Project 4eans of finace 1. ;ature of #acility 2. Purpose 21

Downloaded from a2zmba.blogspot.com 7. )ennure of )erm Foan 6. "nterest rate <eset 8. 4argin :. "nterest <ate, -ommission Door to Door )enor ie.the period within which the entire amount " sto be disbursed. o <epayment )erms o Prime *ecurity o -ollateral *ecurity o +pfront fees ie the charges levied by the ban$ for processing the documents.

7.8 P<@P@*%F
%n approved term sheet leads to preparation proposal. % proposal is prepared in standard format, this enables the ban$ to $eep a proper trac$ record and also facilitates proper comparision. % proposal a full fledged document providing details on project submitted and requesting finance from ban$. % proposal contains information on following aspectsE

= .etai!# o" AccountE "t includes name of the %ccount ?older, Date of incorporation,
Fine of %ctivity, "nternal -redit <ating level, %ddress of the <egistered @ffice, ;ame of Directors, *hare ?olding Pattern, %sset -lassification, Purpose of the Foan.

= Securitie#:Fenders often feel more confident about a loan if they are given a security
interest in the assets of a business. )hen, if the borrower does not repay the loan as promised, the lender can ta$e the property the borrower pledged, sell it and use the proceeds to repay .or partially repay/ the borrowed amount.it provides detailed information on nature of securities given in lieu of the Foan.they are of two types Prime securities, -ollateral *ecuties

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Downloaded from a2zmba.blogspot.com -ri&e Securitie#E Pari Passu is a term used in ban$ing transactions which means that the charge to be created is in continuation of an earlier charge which might be held by the same institution or by an other institution. Co!!atera! Securitie#: "n lending agreements, co!!atera! is a borrower(s asset that is forfeited to the lender if the borrower is insolvent --- that is, unable to pay bac$ the principal and interest on the loan. Dhen insolvent, the borrower is said to default on the loan, in which case the lender becomes the owner of the collateral. "t includes details on ;ature ' Description of collateral security indicating area C location of property Jalue in <upees. Date of valuation along with name of Jaluer "nsurance %mount C Date of !piry

Personal guarantee ' -orporate ,uarantee if any, includes ;ame of the guarantor, Jalue of ,uarantee. = 1inancia! 6igh!ight#: "t povides details of important financial elements over a period of years. "t includes Details on Paid capital, )angible ;etworth, ;et wor$ing -paital,-urrent %ssets, -urrent Fiabilities, ;et Profit, ;et *ales, <eserves and *urplus, "ntangible %sstes, Fong )erm Fiailities, #i!ed %ssets, "nvestments, ;on current %ssets li$e guarantees , -ash %ccruals, -apital employed. "t also includes ratios li$e Debt quity <atio, -urrent <atio, Debt *ervice -overage <atio and so. )he interpretation of the financial data presented provides information on the perfomance trend of the company also of the Projections made. *uch financial highlight play an important role in assesing the financial strenghts and wea$ness of the business.

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= Statu# o" the pro)ect: % brief of Project "n this part of proposal a brief about the project is e!plained, it includes information on nature, type of project, purpose of the project, commencement details, the promoters and related details of the project. "f it is a on-goin project it also gives details on progress and status of progress

K E*a!uation o" Indu#tr$ :

)his *ection gives brief details on the 1. *cope of the industry 2. ,rowth level and overall performance of the industry 7. <ecent Developments and )rend valuation

= Conduct o" the Account:

)his section provides details on E <egularity in *ubmission of> *toc$ *tatements ' 3oo$ Debt *tatement LP< *tatements ' ?alf Hearly *tatement #inancial *tatements -4% Data

= Co&p!iance to +er&# o" Sanction

"t furnishes information on following aspectE -ompletion of 4ortgage formalities <egistration of -harges with <oDhether documents valid and in force -ompliance of <3" guidelines Dhether consortium meetings held at prescribed periodic intervals where the 3an$ is the leader.

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= E9po#ure detai!# "ro& %anking #$#te& ?e9i#ting: ?Inc!. Our Bank: )he sharing pattern of the ban$s is mentioned in this section of proposal. "t includes ;ame of the ban$ Percentage of share for the fund based and non #und based Fimits %mount in <s.

;on #und based credit are in form of gaurantees li$e Fetter of -redit .F'c/, Fetter of gaurantee .F'g/ ,etter o" Credit % MFetter of creditG also $nown as documentary credit is the most commonly accepted instrument of settling international trade payments. % letter of credit is an arrangement whereby a ban$, acting at the request of a customer, underta$es to pay a third party by a given date, on documents being presented in compliance with the conditions laid down. ,etter o" 3uarantee % letter from a ban$ stating that a customer owns a particular security and that the ban$ will guarantee delivery of the security. % letter of guarantee is used by an investor who is writing call options when the underlying stoc$ is not in his or her bro$erage account. % -all @ption is an agreement that gives an investor the right .but not the obligation/ to buy a stoc$, bond, commodity, or other instrument at a specified price within a specific time period. 1inancia! 3uarantee: % non-cancelable indemnity bond guaranteeing the timely payment of principal and interest due on securities by the maturity date. "f the issuer defaults, the insurer will pay a fi!ed sum of money to holders of the securities. #inancial guarantees are similar to a *tandby Fetter of -redit, but are issued by an insurance company. % *tandby Fetter of -redit is a form of insurance on an underlying agreement or obligation .contract/, insuring all parties to the contract against failure to perform or pay on the part of one or another party to the contract. *tandbys are issued by ban$s. 25

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A##e##&ent o" Non 1und Ba#ed ,i&it

1. ;on #und 3ased Fimits are normally to be sanctioned for e!i!ting customer only who already enjoy fund based limits 2. "f new borrower full processing as applicable to #und 3ased Fimits to be carried. 7. 3orrowerGs bac$ground and e!perience of meeting commitments to be e!amined in details. 6. F'c limit to be considered as per terms of Purchase or contract, lead period and minimum econmical quantity of supply of stoc$s 8. ;on #undabsed Fimits are to be supported by necessary fund based limits. :. Past e!perience of payment of billsunder F'c to be verified before considering new request. 5. Dhile %ssessing the F'g Fimit contract or agreement which is the base for F'g, should be e!amined in details for any ambigious clauses. =. %ny request for financial ,uarantee to be critically e!amined before ta$in decision.

= .etai!# o" Si#ter5 A!!ied Concern#:

)his section provides information about the *ister' %llied -oncerns aspects li$e the performance, promoters, share holding pattern, operation e!posure and e!perience from various ban$s.

= +er&# and Condition:

"t is important both for the ban$and the applicant to safegaurd its interest, this could be achieved by settling at mutually acceptable terms and condition inorder to ensure that both the parties the lender and borrower perform their part of obligation thereby not putting other party at loss. %ll loans are subject to regulations and conditions. )he legal information relating to these regulations and conditions can be viewed in this section. "t is advisable for both the parties to read this information carefully before approval.

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7.: D"*3+<* 4 ;)E

%fter submission Proposal to Designated' *anctioning %uthortiy for sanctioning the )erm Foan. the authorities may raise querries, if any relating to projects and thereby convey it to the processing officer the processing officer inturn addresses them to the borrower for necessary step to be ta$en, such querries are required to be solved to the earliest by the applicant for further proceesing of the proposal. "f the authoritiees are satisfied and have no further querries with respect to proposal,the Foan gets sanctioned and the disbursement would be released in as per the terms decided.

7.5 #@FF@D-+PE
)his is most cruicial stage in process of term loan assesment. *ince amount of credit required is usually high, such amounts are disbursed in one installment, they are paid in installments.this helps the lender ban$ to understand and assess the utilisation of funds disbursed by the lender 3an$. *uch evualtion is done by obtaining FenderGs ngineer <eport, it is report that provides complete details of the status of the project. "t is prepared on monthly basis. "t also provides -% <eport, it verifies the #inacial details furnished to ban$ for further disbursement.this is $nown as renewal of account.

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Chap 4E %nalysis of -redit proposals

<.1 -rpo#a! o" @0, ,td.

6.1.1 3%-B,<@+;DE
)he company was incorporated on Nanuary 8, 2991, however later the name was changed and the current name is effective from 4arch 27, 299: with the objective of generation of power based on coal. )he proposed manufacturing facilities are located at %ngul district, @rissa.. )he group is already engaged in the business of manufacturing Photographic goods, Polyester film, 3@PP films, 4etallized films, -old rolled steel strips and ,alvanized sheets. )he details of associate concerns are as under ENPF - Photographic films C equipment. NP#F - Polyester chips, Polyester film, PJD- film, 3@PP film C 4etallized film. )he companyGs manufacturing plant at ;asi$, 4aharashtra is one of the worldGs largest single location plant for the manufacture of 3@P ) and 3@PP films. N"F - *teel pipes, cold rolled strips C ,P',- sheets. stablished in 1282, ran$s among the major manufacturers of <D ' ?#"D and galvanized steel pipes and tubes in the country. )he company commenced business operations through establishment of a manufacturing facility in ?owrah, Dest 3engal for manufacture of pipe fittings, bends and soc$ets. %t present, the company has a manufacturing capacity of 1:9,999 )P% of steel pipes C tubes, 799,999 )P% of ,P',sheets and 789,999 )P% of -< coil ' sheets. -ro&oter NPF NP#F Shareho!ding ?A: 2: > 6>

28

Downloaded from a2zmba.blogspot.com 3roup In*e#t&ent Co&panie# inc!ude: -onsolidated Photo C #invest Ftd <ishi )rading -o. Ftd. *oyuz )rading -o. Ftd. NonB3roup Co&panie# 3udhiya 4ar$eting Pvt. Ftd. .34PF/ dward *upply Pvt. Ftd. . *PF/ +O+A, 1CCA 28> 68>

J%F+%)"@; @# 4%;%, 4 ;)
1: /arket reputation on the pro&oter 5 &anage&ent o" the co&pan$: *atisfactory 2: 6and# on e9perience o" the &anage&ent per#onne! in the indu#tr$ 5 Bu#ine## &anaged %$ 8ua!i"ied per#onne!E )he qualified professionals C e!perienced persons are proposed to be appointed for managing the overall operation of the company. details of $ey management personnel of NBF Pvt. Ftd. %re as underE /r -unit 3upta 4r. Punit ,upta, aged about 61 years, is a 3.*c. and 4.3.%. ?e has wor$ e!perience of about 1= years in the field of Project 4anagement and 4ar$eting with the group. ?e is presently heading the Project team for setting up of the proposed power project and is involved in budgeting, costing, financial analysis, sensitivity analysis, project planning, tendering, bid evaluation, award of contracts, post award activities, coordination with contractors, finalisation of 4@+s, NJ %greements, and various types of studies required for Power Projects etc. /r '&e#h Chand @ain 4r. +mesh -hand Nain is a graduate with wor$ e!perience of about 77 years in the areas of )rading, Fiaisoning, 3usiness management and implementation of new Projects. ?e

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Downloaded from a2zmba.blogspot.com has been wor$ing with the ,roup for the last seven years. ?e is on the 3oard of various group companies including -onsolidated #invest C ?oldings Fimited. /r S. R. 2ada* 4r. *.<.Hadav is an e!- !ecutive Director, ;-< region, ;)P-. ?e is also a Director on the board for ;)P--*%"F Power -ompany .P/ Ftd. ?e will be heading the ngineering team in NBF Pvt. Ftd. ?e is a 4echanical engineer from <"), Namshedpur and has wor$ e!perience of over 78 years in the areas of project planning, erection, commissioning, operation and maintenance. ?e has been involved in many green field projects of ;)Pand was posted in Borba, 3o$aro, *ingrauli etc. /r A. 0. Sehde* 4r %B *ehdev is an engineering graduate from Delhi -ollege of ngineering. ?e has over 7: years of e!perience of ;avaratna -ompanies li$e "@- and ;)P-. ?e is involved in preparation of action plan, project formulation, project scheduling, #<s and DP<s, cost estimation and cost control, financial analysis, tariff calculations, budget preparation, project engineering and finalization of technical specifications of various pac$ages. /r -. 0. -atnaik 4r Patnai$ has many years of e!perience in "PP ."ndustrial Power Projects/ ?e had also wor$ed in two +B based company as an advisor. ?e was JP and country 4anager with Bennedy C Don$in Ftd and ?ead 3usiness Development with 4erz C 4cFellan Ftd. ?e wor$ed in Fanco Bondapalli also. Prior to joining N")PF as *r JP .-orporate affairs/, he was ?ead .-orporate %ffairs/ at gateway, ;ew Delhi. /r A C Sarkar 4r *ar$ar is !ecutive Director . astern <egion-1/, Power ,rid -orporation of "ndia Ftd .P,-"F/ and has wor$ e!perience of about 78 years of e!perience in Power transmission. ?e is an lectrical engineer from *ibpur ngg -ollege. ?e has been involved in the establishment of the national transmission grid and has e!perience in the areas of

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Downloaded from a2zmba.blogspot.com planning, coordination, project management, technical and commercial considerations. ?e is joining N")PF as Jice-President .)ransmission/. /r @. Ra&e#h Chandra 4r -handra is 4aster in %pplied physics C "nstrumentation. ?e has wor$ e!perience of around 77 years in various companies including Desein and 3? F. ?e has joined NBF Pvt. Ftd as ,4 .-ontrol and "nstrumentation/. ?e has e!perience of instrumentation process for 3), .boiler, turbine C generator/ and 3@P .balance of plant/, project engineering, design and commissioning. /r ,. -. Soni 4r *oni is a -hartered %ccountant and -ompany *ecretary with over 28 years e!perience in various companies. 4r. *oniGs areas of e!pertise include project financing, wor$ing capital management, fund raising through capital mar$et, foreign e!change management, -ompany law matters. 4r. *oni has been earlier associated with various companies including *urya <oshni Ftd., 4aharaja *hree +maid 4ills Ftd. in senior positions prior to joining the group as JP .#inance/. /r A#hok 0r 0ucheria 4r Bucheria is 4 -om and -hartered %ccountant and has wor$ e!perience of over 26 years. ?e was head of #inance of Namlal Drilling and "ndustries Ftd for around 16 years and rose to the post of -#@ of the -ompany. ?is strengths points are auditing, 4"*, )a!ation, project financing, wor$ing capital management, fund raising, capital mar$et, foreign e!change management etc. Presently he is ,4 .#inance/ for power project and he is involved in resource management and financial closure for the project. /r -. 3iri#h 4r P ,irish is Jice President, .-orporate affairs/ in charge of govt liaisoning for Delhi. ?e has 21 years of e!perience in corporate affairs, administration in various -ompanies. 4r. ,irish has started his career with <olls <oyce "ndustrial Power Ftd in the -ommercial department. ?e has been associated with the 4ala!mi "nfra Jentures Pvt

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Downloaded from a2zmba.blogspot.com Ftd as ,eneral 4anager with the major responsibilities of ;avabharat Power Pvt Ftd. and *imhapuri nergy Pvt Ftd ;ellore based on "mported -oal. ?e has also wor$ed for Fanco Power Pvt Ftd as a 4anager %dministration. /r Na*een 3oe! 4r ;aveen ,oel is ?ead .*tate Fiaisoning/, @rissa. ?e is 3 .-om from Delhi +niversity and inter in -% and "-D%. ?e started his career with Nindal Photo Fimited since 1228. /r. B , .ua 4r Dua is ,eneral 4anager Project Development and -onstruction. ?e has over 7= years of e!perience on civil construction, especially power plants. ?e has e!perience of construction engineering and has completed a Diploma in civil engineering. ?e has been associated with various public sector companies including -entral 3oard of Dater, -entral lectricity %uthority and ;)P- etc. (: A%i!it$ o" the pro&oter# 5 &anage&ent to %ai! out the co&pan$ in ca#e o" cri#i# ?"or e!ample, this could be derived from a strong group company/ )he e!perienced directors bear the capacity to bail out the company in case of crisis. <: .eci#ion &aking D I# it concentratedE % committee of directors comprising of qualified C e!perienced personnel will professionally manage the company. F: Organi#ation #tructure 5 Succe##ion p!anning 5 ,a%our re!ation# )he company will be a professionally managed company hence, any threat of succession planning is not perceived. G:I# an$ group co&pan$ in de"au!t 5 An$ .irector# on RBIH# negati*e !i#t 5 Borro7erH# trackBrecord in honouring "inancia! co&&it&entE

32

Downloaded from a2zmba.blogspot.com )he company has confirmed that none of the Directors of NBF Pvt. Ftd are on <3"Gs defaultersG list in respect of NBF Pvt. Ftd. or any other company in which they are a Director. I: ,ength o" re!ation#hip 7ith the %ank )he ,roup is new to us.

J%F+%)"@; @# ";D+*)<H
)hermal power stations constituting over ::> of the aggregate installed generation capacity and despite being relatively less environment-friendly as compared to hydroelectric projects .? Ps/, thermal power plants offer certain advantages over ? Ps as mentioned belowE Fesser implementation time-frameE 2.8-7.8 years as compared to 8-: years for ? Ps& %bility to function as base load power plants as compared to ? Ps which serve as pea$load power plants& *tandardized generation technologyE independent of project site& %bsence of seasonal variations in power generation& Focation fle!ibilityE -an be located either close to load-centre or at fuel pit-head while ? Ps are site-specific and often located in challenging geographical terrain. .e&andBSupp!$ Scenario Power supply position in the country has worsened over the last few years with growth in power demand outstripping new capacity addition with pea$ power deficit being worst having pea$ deficit of 17.8> in 299:-95. )he energy deficit at the national level has increased from 5.8> in 2997-96 to 2.2> in 299:-95

Projected Power <equirement beyond 2911-12 till 2921-22

Dith rapid growth of the economy, power requirement is projected to increase significantly over the ne!t decade with per capita power consumption e!pected to increase from O:12 $Dh at present to about 1999 $Dh by 2912 .,o"Gs target for 199> electrification/. 33

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,iven the prevalent demand supply deficit scenario and projected growth in power requirement, huge addition in generation capacity is required in the country over the coming decade. -onsequently, there e!ists an attractive business and mar$et opportunity for establishment of power generation plants in the country, especially in the northern C western regions of the country.

+arget State# "or -o7er Sa!e "n view of the adverse power deficit scenario in western and northern region as mentioned in the previous sections, both these regions have been identified as target mar$ets for ultimate sale of NBF Pvt. Ftd power.

Ana!$#i#
Projected 3alance *heet
%s @n A##et# ,ross 3loc$ -DP FessE%ccum ulated Depreciation -losing 3loc$ ;et -urrent %ssets -ash C 3an$ 3alances D*<% +O+A, ASSE+S ,ia%i!itie# *hareholders ( quity <eserves C *urplus Net Worth <upee )erm Foan *ub-Debt Dor$ing -apital Foan Deferred %%D 4ar-92 77 71: 9 762 9 9 9 (<J 4ar19 77 =1: 9 =62 9 9 9 K<J 4ar11 77 21== 9 2221 9 9 9 2221 4ar12 2=1= 9 62 25:2 1=5 86 :8 (CIF 4ar17 2=1= 9 12: 2:22 1== 19: 292 (12F 4ar16 2=1= 9 767 2658 1=2 282 222 (1<F 4ar18 2=1= 9 629 272= 129 661 21: (1I< 4ar1: 2=1= 9 :75 21=1 129 :72 297 (21(

<s. in -rores
4ar15 2=1= 9 5=6 2976 15= 5=7 129 (1KG 4ar1= 2=1= 9 271 1==5 152 276 155 (1IG 4ar12 2=1= 9 195= 1569 1=9 1922 1:6 (1IG 4ar29 2=1= 9 1228 1827 1=1 1282 181 (1K<

291 9 2C1 172 2 9 9

291 9 2C1 :9= 61 9 9

666 9 <<< 1::: 111 9 9

857 59 G<( 216= 167 169 9

857 25: K<J 12=5 169 161 =

857 622 1CGF 1552 128 162 69

857 51= 12J1 188= 111 162 52

857 286 1F2G 1767 25 167 196

857 1172 1ICF 112= =2 176 175

857 1712 1KJ2 217 := 178 1:2

857 1818 2CKK :2= 86 178 291

857 1512 22J1 6=7 72 17: 277

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%s @n +O+A, ,IABI,I+I ES 4ar19 K<J 4ar11 2221 4ar12 (CIF 4ar17 (12F 4ar16 (1<F 4ar18 (1I< 4ar1: (21( 4ar15 (1KG 4ar1= (1IG 4ar12 (1IG 4ar29 (1K<

4ar-92 (<J

Projected Profit and Foss %ccount

FY Ending` Revenues Primary energy sale to GoO Powe sale P ! "ess ##D Gross Revenues O era!ing E" ense O$ % e&p' ravel an( )*el +&p' ,e-on(ary )*el +&p' +nvironment !ess #o!a$ O era!ing E" % &'()# Depre-iation &')# Int' on . " Int' ,*/' De/t Int' on 0! "oan &'# a& &*# Mar12 60 253 0 313 24 55 8 6 92 221 49 172 80 6 6 79 9 70 Mar13 188 758 8 938 74 171 24 18 287 651 147 504 235 19 18 233 26 206 Mar14 209 758 32 935 77 178 25 18 298 638 147 491 211 18 18 244 28 216 Mar15 206 758 32 932 80 185 26 18 309 623 147 476 187 16 18 255 29 226 Mar16 202 758 32 928 83 192 28 18 321 607 147 460 163 14 18 265 30 235 Mar17 198 683 32 849 86 200 29 18 333 516 147 369 139 12 17 201 23 178

<s. in -rores
Mar18 195 683 32 845 90 208 30 18 345 500 147 353 115 10 17 211 24 187 Mar19 192 683 32 842 94 217 31 18 359 484 147 337 91 8 17 221 25 196 Mar20 189 683 32 839 97 225 32 18 372 467 147 320 66 6 17 230 26 204

*ensitivity %nalysis Scenario Ba#e Ca#e "ncrease in Project -ost by 8> Decrease in Power *ale )ariff through P)- by 8> during Hear 1-8 "ncrease in Primary #uel price by 8> Decrease in PF# by 8> "ncrease in "nterest rate by 1> for both *enior debt C *ubordinated debt Interpretation A*g. .SCR 1.GC 1.86 1.8: 1.8= 1.62 1.86 /in. .SCR 1.(K 1.76 1.77 1.75 1.22 1.76 -ro)ect IRR= 1F.G A 16.2 > 16.2 > 18.7 > 16.2 > 18.: >

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Downloaded from a2zmba.blogspot.com Project is able to withstand the operations at a lower tariff and its debt servicing capacity .%verage D*-<E 1.8:, 4in D*-<E 1.77/ is satisfactory. Increa#e in -ri&ar$ 1ue! price %$ FA *ensitivity has also been carried out for increase in the fuel prices by 8> over the base case numbers. )he Project is able to sustain the increased fuel cost and its debt servicing capacity remains satisfactory with an average D*-< of 1.8= and minimum D*-< of 1.75. )he impact of any fuel price escalation on the projected financials is partly mitigated on account of the pass-through effect in the power sale tariff applicable to ,ridco. "t may however be noted that since most of the coal requirement for the Project will be met from the captive coal bloc$ allotted to the company, the company will be able to have a better control over the coal price thereby reducing it e!posure to any escalations in coal price. .ecrea#e in -!ant -,1 %$ FA +nder the base case projections, the operations of the project have been projected at a PF# of =9>. *ensitivity has been carried out for the scenario of the Project running at a lower PF# i.e. 58>. "t has been observed that the Project is able to withstand the operations at a lower PF# and its debt servicing capacity .%verage D*-<E 1.62, 4in D*-<E 1.22/ is satisfactory. -onsidering the better operational performance of e!isting "PPs in the country vis a vis state sector projects, the situation of a PF# lower than =9> seems unli$ely. Increa#e in R+, Intere#t Rate %$ 1A *ensitivity has also been carried out for increase in the <)F interest rate by 1> over the base case interest rate of 11.8> for *enior debt and 17.8> for *ubordinated Debt. "t is observed that the Project is able to sustain the increased interest costs comfortably and its debt servicing capacity .%verage D*-<E 1.86, 4in D*-<E 1.76/ remains satisfactory. %s can be seen above, the debt serviceability of the project is comfortable adverse sensitivities considered. ?ence, it can be concluded that the proposed power project will

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Downloaded from a2zmba.blogspot.com be able to withstand adverse circumstances and the debt serviceability is satisfactory, even under adverse circumstances. .ecrea#e in -o7er Sa!e +ari"" through -+C %$ FA during 2ear 1BF +nder the base case projections, tariff for power sale to P)- has been maintained at <s. 2.:9 per $Dh for Hear 1-8 and <s 2.76 per $Dh for subsequent years. *ensitivity has been carried out for the scenario of the power being sold at 8> lower than the base case tariff i.e. <s. 2.65 per $Dh. %s seen above, the Project is able to withstand the operations at a lower tariff and its debt servicing capacity .%verage D*-<E 1.8:, 4in D*-<E 1.77/ is satisfactory. Increa#e in -ro)ect co#t %$ FA % sensitivity has been carried out for 8> increase in the wor$s cost which have estimated at <s. 2226 crore in the base case. )he Project is able to sustain a 8> escalation in capital cost comfortably and its debt servicing capacity .%verage D*-<E 1.86, 4in D*-<E 1.76/ remains satisfactory.

0E2 -OIN+S: 1. *ensitivity analysis was done. )he results of which are as followsE Dhen the power sale tariff to PP)-Q . P)- "ndia Ftd/ are decreased by 8> the %verage D*-<E 1.8:, 4in D*-<E 1.77 . )his is above the benchmar$ level. Dhen project cost is increased by 8> %verage D*-<E 1.86, 4in D*-<E 1.76. )his is above benchmar$ levels and is considered favourable. "n case of increase in <)F "nterest <ate by 1> the %verage D*-<E 1.86, 4in D*-<E 1.76/ remains satisfactory Dhen the primary fuel prices increase by 8> the %verage D*-< of 1.8= and 4inimum D*-< of 1.75 remains satisfactory. %s can be seen above, the debt serviceability of the project is comfortable when adverse sensitivities considered. ?ence, it can be concluded that the proposed power project will be able to withstand adverse circumstances.

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2. )he profitability estimates are sensitive to fluctuation in sales. 7. )he projected Debt quity ratio and -urrent <atio are at satisfactory level. %s the project implementation is yet to commence, offering any comments on financial indicators would not be relevant at this juncture as the same would go on changing. 6. %ccording to internal credit rating, the company has been rated as -<-7. 8. Primary fuel requirements for the Project will be met with from the -oal lin$age from 4ahanadi -oalfields Ftd .4-F/ and -aptive 4anda$ini coal bloc$ in )alcher coalfields, @rissa .NBF Pvt. Ftd. will enter into separate long-term #uel *upply %greements with the 4ining NJ- and 4-F for supply of coal from the captive bloc$ and coal lin$age respectively, ta$en together would be adequate for requirement of proposed :99 4D for its entire project life. :. )he company has already into Power Purchase %greements .PP%/ with ,ridco for sale of 28> of the power. -ompany has also entered into ?@%.?eads of %greement/ with P)- for sale of balance 58> power at reasonably attractive tariff. 5. 3oth ,ridco and P)- would open F- in favor of NBF Pvt. Ftd for timely payment of invoices. =. ven with an increase of 1> in the interest rate, average C minimum D*-< are comfortable.

2J. Reco&&endation#
NBF Pvt. Ftd. is being promoted by 3-N ,roup, implementing a :99 4D pit-head coal-based power project in %ngul district of @rissa. )he project capacity is proposed to be enhanced to 1299 4D through implementation of a second unit of :99 4D at a later stage. *alient features of the proposed project, are as underE

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Downloaded from a2zmba.blogspot.com 1. Proven trac$ record of promoters RNPF along with other group ' investment companies of 3-N groupS - in running profitable business operations and adequate financial strength to meet the equity requirements for the project& 2. %ssured fuel at reasonable cost A fuel from allocated captive coal bloc$ adjacent to project site along with additional long-term coal lin$age from 4-F. -aptive coal source will protect NBF Pvt.Ftd from fuel price fluctuations and ma$e the power cost competitive& 7. *ignificant progress in project development activities as under. *tate support for land acquisition, water allocation and other developmental aspects of the project secured through 4o+& *ection .6/ notification for acquisition of land issued& "n-principle allocation of water sufficient to meet project requirements& ,rant of various project clearances ' approvals, including )@< for from 4o #, ,o"& 6. Power off-ta$e arrangement!ecution of PP% with ,ridco for sale of 28> "% study

project capacity and e!ecution of ?@% for sale of balance power through P)-. %nalysis of the project development structure and projected financial performance of the Project, based on the information pertaining to the project cost, financing plan, and prevalent mar$et conditions while a sensitivity analysis has also been carried out to test the robustness of project financial in respect of $ey business and performance parameters. )he projected financials of the project are reasonably comfortable under different sensitivity scenarios as required to service the project debt over proposed tenor. 8. 3ased on the projected financials, sensitivity analysis and ris$s factors, *3" -apital 4ar$ets has viewed the proposed project of N")PF, as financially viable. *3"-%P has further stated that $eeping in view the proven credentials of the project promoters, progress achieved in project development and projected financial performance of the project, the project appears to be ban$able and accordingly, the proposal may be considered favorably for final sanction of <)F and *ubordinated debt.

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Downloaded from a2zmba.blogspot.com "n view of the above mentioned observations, recommended the following. .<s. in -rores/ ;ature of Fimit !isting ;il %mount Proposed 799.99 4argin 28>

)erm loan "nterest shall be 11.89> p.a. floating for senior debt and 17.89> p.a for subordinate debt payable monthly.

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Conc!u#ion
-redit %ppraisal is a process of appraising the credit worthiness of loan applicants. )he funds of depositorGs i.e general public are mobilized by means of such advance ' investment. )hus it e!tremely important for the lender ban$ to assess the ris$ associated with credit, thereby ensure the security for the funds deposited by the depositors. "n +3" the credit appraisal is done by thorough study of the project which involves #ollowing. 1/ valuation of 4anagementE % detailed study about the promoters is carried out in order to ensure promoters are e!perienced in the line of business and are capable to implement and run the project 2/ )echnical #easibilityE % detailed study about the technical aspects is done to determine the technical soundness of the project 7/ #inancial JiabilityE % detailed study relating to financial viability of the project is done& thereby ensuring that project will generate sufficient surplus to repay the lan installment and interest 6/ <is$ analysisE it determines the ris$ associated with the project this is done by performing a *ensitivity analysis and -redit <ating. Dith *ensitivity %nalysis the projects capacity to service debts under worsened conditions is determined. -redit rating, provides rating for various parameters li$e management, financial, mar$et and so, thereby determine the credit worthiness of the borrower 8/ "t is on the basis of the credit ris$ level, collateral securities to be given by the borrower are determined. )his shows +nion 3an$ of "ndia has sound system for credit appraisal.

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Anne9ure 1: 1or&at o" +er& Sheet

'nion Bank O1 India "ndustrial #inance 3ranch, 4umbai

A--ROVA, O1 BROA. +ER/S O1 +6E -RO-OSA, "#3E%DJEE Na&e o" the account %ccount with ,roup !isting connection or new connection -redit <ating 3ac$ground of promoters

Dated

.<s. "n -rores/ 3rief #inancials Hear .%ud./ ;et *ales P%).Foss/ );DK -urrent <atio )@F');D <%)"@ .<s. "n -rores/ ;ature of Project Hear .%ud./ Hear .Prov./

-ost of Project tal 4 %;* @# #";%;;ature of #acility > of

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Downloaded from a2zmba.blogspot.com %mount 4argin "nterest'-ommission "nterest reset Purpose Period of the facility /oratoriu& Door )o Door )enor <epayment terms *ecurity A Prime -ollateral security +pfront fees Prepayment terms Dhether conforms to Foan Policy -ustomer profitability, .in case of e!isting accounts/ 1. -ommission earned on bills purchased'discounted. 2. Processing charges 7. -ommission on F-'F, 6. -redit balances in a. *3 b. -D 8. )erm deposits a. )hrough own sources b. )hrough third party <s. -rores

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