A SUMMER PROJECT REPORT ON Debt restructuring options & Indian port sector. FOR ADANI PORTS LTD.

Submitted to: MR. RAJESH TULSIANI MANAGER (FINANCE) ADANI PORTS LTD

Submitted b : AGAR!AL "ASH #. M$A (%ST "EAR) NRI$M& AHMEDA$AD

I' P()ti(* +u*+i**me't +o) , e() +u**time M$A -ou).e (t Gu/()(t U'i0e).it .

ACKNOWLEDGEMENT
A project report of such a comprehensive coverage wouldnt have been materialized without the guidance and cooperation of Mr. Rajesh Tulsiani (Manager Finance who was also a constant source of inspiration and too! !een interest in chec!ing the various details of the report and helped a lot during the training program and the research. " am highl# indebted to him and " feel honored to than! the following persons . Mr. $autam Adani ( Managing %irector& $A'( Mr. Asit 'ari!h ( Te)tiles %ivision& Adani *)ports Mr. +. Rajshe!aran(%irector Academics & AMA and rest of the staff of Adani *)ports (td and $A'(. " am than!ful to 'rof. +handelwal& %irector ,R"-M and 'rof. ,eeraj Amarnai& placement coordinator who who gave me the opportunit# to wor! with Adani 'orts (td. " respect the precious !nowledge obtained from m# 'rofessors at ,R"-M which helped in practical applications during m# training program.

" am highl# obliged to all those who have helped us directl# or indirectl# in successful completion of this project. Yash K. Agarwal

CONTENTS

%. ,. 3. 4. 5. 6. 7. 8. 9. %;. %%. %,.

E1ECUTI2E SUMMAR" O$JECTI2E INFRASTRUCTURE DE2ELOPMENT AND FINANACING IN INDIA INTRODUCTION TO INDIAN PORT SECTOR GUJARAT ADANI PORTS LIMITED CORPORATE $OND SECURITISATION PRI2ATE INSURANCE SECTOR FUNDING ME::ANINE FINANCE CREDIT RATING PROCEDURE CONCLUSION $I$LIOGRAPH"

1.EXECUTIVE SUMMARY
Name of the stude t Name of the " st"tut"o . !Yash Kr"sh a#umar Agarwal ,R"-M& Ahmedabad Mr. Rajesh Tulsiani Adani 'orts (td. Ahmedabad /tud# of "ndian 'ort sector and 0ptions for its %ebt restructuring

Name of the re$ort" g off"%er. Name of the orga "&at"o .

'ur$ose of the 'ro(e%t )*(e%t"+es

. To stud# the "ndian port sector with emphasis on $ujarat Adani 'orts ltd To stud# the different aspects of the infrastructure financing in "ndia To stud# and anal#ze different instruments for debt restructuring. To stud# the procedure for 1redit Rating in "ndia /teps to be ta!en which are in best interest of the compan#. The project is a blend of the primar# as well as the secondar# data. The data were collected from the compan#s past record &.various websites& publications and other projects. . The project has been completed successfull# and the objectives were met. .

Methodolog,

Co %lus"o

-.)./ECTIVES )0 'R)/ECT
To stud# the "ndian "nfrastructure financing mar!et. To stud# the "ndian port sector . 2nderstand the wor!ing and operations of $A'( To anal#ze different wa#s of substituting costl# loans for other cheap debt instruments. To stud# the process of credit rating.

1.IN0RASTRUCTURE 2EVE3)'MENT 0INANCIN4

Introduction
The availabilit# of ade3uate infrastructure facilities is imperative for the overall economic development of the countr#. "nfrastructure ade3uac# helps determine success in diversif#ing production& e)panding trade& coping with population growth& reducing povert# and improving environmental conditions. Toda#& it is necessar# to broaden one4s concern from increasing the 3uantit# of infrastructure stoc!s to improving the 3ualit# of infrastructure services. "n recent #ears& there has been a revolution in thin!ing about that should be responsible for providing infrastructure stoc!s and services& and how these services should be delivered to the users. 0ne of the bottlenec!s in infrastructure development in "ndia is the conflict arising out of the confusion over the government4s role in being licensers for infrastructure development& an infrastructure developer and operator& and finall# a regulator. A clear separation of these roles would be essential. To further aid this process& the financial& insurance and legal sectors would have to pla# a significant role. 'rovision of 3ualit# infrastructure services at reasonable cost& is a necessar# condition for achieving sustained economic growth. "n fact& one of the major challenges being faced b# the "ndian econom#& as we enter the new millennium is to enhance infrastructure investment and to improve the deliver# s#stem and 3ualit# of services. There is a huge critical importance of the infrastructure sector and high priorit# for development of various infrastructure services such as power& telecommunications& seaports& airports& railwa#s& roads etc. is being given these da#s. "nvestments in these sectors involve high ris!& low return& and lumpiness of huge investment& high incremental capital5output ratio& long pa#bac! periods& and superior technolog#. These prere3uisites pose a constraint on the $overnment4s efficient deliver# of 3ualit# infrastructure services. 6hile

liberalizing the rules and procedures& the $overnment has created an environment conducive for private participation including foreign investment in infrastructure sector. A series of ta) incentives and concessions have been announced& regulations and procedures have been simplified for enhancing competition in this sector.

What is Infrastructure?
As per India Infrastructure Report: 7"nfrastructure is generall# defined as the ph#sical framewor! of facilities through which goods and services are provided to public. "ts lin!ages to the econom# are multiple and comple)& because it affects production and consumption directl#& creates negative and positive spillover effects (e)ternalities and involves large flow of e)penditure. "nfrastructure contributes to economic development& both b# increasing productivit# and b# providing amenities which enhance the 3ualit# of life. The services provided lead to growth in production in several wa#s. "nfrastructure services are intermediate inputs to production and an# reduction in these input costs raises the profitabilit# of production& thus pertaining higher levels of output& income and or emplo#ment. These raise the productivit# of other factors including labour and other capital. "nfrastructure is thus often described as an 72npaid Factor of 'roduction7& since its availabilit# leads to higher obtainable from other capital and labour.

Why is Infrastructure Important?

As per India Infrastructure Report: 7The availabilit# of ade3uate infrastructure facilities is imperative for the overall economic development of the countr#. "nfrastructure ade3uac# helps determine reducing povert# and improving environmental conditions.7 7Research indicates that total infrastructure stoc!s increase b# 89 with each 89 increment in per capita $%'.7

Key Issues in Infrastructure Development and Financing

The +e# issues in infrastructure development are. :

'r"+at"&at"o The importance of privatization is because it brings along with it a Additional resources and b holding. U *u dl" g a d 'ro(e%t Stru%tur" g 2nbundling is a necessar# condition before attracting private participation is unbundling the infrastructure into logical sub activities which can be privatized separatel# to enable private parties not to have to bite more than what the# can chew. To enable unbundling necessar# acts shall have to be overhauled. Regulator# reform would also be essential to provide increased autonom#& especiall# for capital investment& even as a precursor to unbundling. Another reason for regulator# reform is to e)ercise controls over implicit monopol# situations. 'roject /tructuring is also a !e# issue as since projects have to be structured small enough to ma!e them investment friendl#& and at the same time 71ommercial7 viable. improved managerial efficienc# in asset creation& asset utilization and customer service leading to better financial health& due to sta!e

'ro(e%t A$$ra"sal a d 0" a %" g The !e# issue here is one of appraising the project against future cash flows rather than an asset base or collaterals. ;arious forms of revenue& control over revenue and ris! guarantees would also be related concerns. A vital ban!ing infrastructure to complement all this would be essential.

'ro(e%t Im$leme tat"o /peed of project implementation would be imperatives& in the conte)t of environmental and other regulator# issues.

Classification of Infrastructure Sector

"nfrastructure is classified as. : <*conomic "nfrastructure which includes transportation (Roadwa#s& railwa#s& airwa#s and other water transportation = 'ower $eneration& transmission and distribution= telecommunications= port handling facilities= water suppl# and sewage disposal= urban mass transportation s#stems and other urban infrastructure (housing& etc and irrigation. </ocial "nfrastructure which includes medical& educational and other primar# services.

Features of Infrastructure ro!ects in India

1haracteristics of "nfrastructure 'rojects. 1. Mult"$le le+el $ro(e%t R"s#s! "nfrastructure Financing involves ris! participation at multiple levels and is comple) to understand for individual investors. The nature of 'roject ris! in various stages is volatile& it is the highest in the pre:commissioning stage and is sought to be mitigated through contractual framewor! which is concession driven or provides guaranteed returns. These guarantees and concessions are t#picall#

e)tended b# $overnment and >uasi:government organization (Municipal 1orporations& '/2& etc and thus minimizing financial ris!. -. U %o +e t"o al Asset Co+er! "nfrastructure 'rojects are t#pified b# unconventional asset structure. As an illustration& the assets of an infrastructure project could comprise. a. Roads or a bridge or Fl#overs b. ?etties& 1ontainer Terminals& (oading:2nloading -a#& /torage Tan!s in the 'ort "nfrastructure 'rojects c. 0il well or a coal mine:drills& rigs& etc d. 6ater Treatment 'lant (*T' These assets are not amenable to resale or reapplication and hence are unacceptable as securit# cover to conventional lenders. Furthermore& the step:in rights to lenders are non:e)istent since such projects are awarded on basis of concession and are on a -uild 0perate and Transfer basis (-0T with the 70wnership7 of such assets rests with the /tate of 1entral $overnment or >uasi $overnment 0rganization.

Challenges in Infrastructure Financing

I frastru%ture $ro(e%ts are t,$"%all,! 8. (ong tenure projects and involving @. Aigh capital outla# and bac!:ended returns. Therefore such projects re3uire long tenure funds i.e. in e)cess of 8B #ears. "n the "ndian conte)t the availabilit# of such funds is restrictive since "ndian Financial "nstitutions5-an!s are often constrained b#. a. 'referred investment horizon of C:8B #ears to avoid major asset5liabilit# mismatches. b. *)posure norms and ris! weightage on e)posures for projects

0"s%al I %e t"+es for I +estme t " I frastru%ture 'ro(e%ts The $overnment of "ndia has sought to alleviate some of these concerns5issues b# providing certain fiscal incentives& concessions and polic# reforms. /ome of these reforms have been. a. "ncome Ta) e)emptions under /ection 8B (@D (g for interest and capital gains income earned for infrastructure projects b. "ncome Ta) e)emptions under /ection EF (*A5*- for capital gains which can be reinvested in infrastructure project companies c. %eduction under /ection GG for investment in infrastructure projects : %eduction available for individual investors. d. *)emption from Minimum Alternative Ta) e. 1oncessional import duties and port charges for project:related imports. f. "ncreased limits for *)ternal 1ommercial -orrowings. g. Five #ear ta) holida# to be claimed within 8@ #ears of operation. For the balance #ears& a DB9 e)emption is available.

Characteristics of Infrastructure ro!ects

I frastru%ture 'ro(e%ts are t,$"f"ed *, u %o +e t"o al asset stru%ture : Roads& -ridges& ?etties& 1ontainer Terminals& oil5mine drills& water treatment plant : investment not amenable to resale or reapplication : 2nacceptable securit# cover : /tep: in rights to lenders inade3uate : (ac! of implementation e)pertise 'ro(e%t r"s# " +ar"ous stages of the $ro(e%t l"fe %,%le! : Aighest pre:commissioning stage : would involve higher cost of funds& partl# offset b# benefits of /ection 8B (@D (g : Ris! upon commissioning : diminished 0rom the 0" a %"ers5 'ers$e%t"+e! : (ong tenure borrowing in the form of loan : lac! of e)it options : /ponsor to carr# ris! till the end : (ender4s ris! partl# mitigated

The use of 1redit %erivative /tructures can also be given a thought while structuring the transaction structure for financing the "nfrastructure 'rojects.

Ris" Assessment of rivate Infrastructure ro!ects

'roject /ponsor5"nfrastructure 1ompan# bears considerable ris!s. The following are the major ris!s beared b# the these companies. 1. Im$leme tat"o R"s#! This is the ris! in the pre:commissioning stage which covers 'roject %esign& 'roject 1onfigurations& *3uipment 'rocurements and timel# completion of the 'roject.. -. )$erat"o al R"s#! This is also one of the major ris! beared b# the "nfrastructure 1ompan# 5 'roject /ponsors. This covers 0peration and Maintenance re3uiring *ngineering 5 (ogistics *)pertise. 1. 0" a %"al R"s#! Financial ris! ta!es place when "mplementation Ris! and 0perational Ris! are partl# mitigated. The result of this ris! ma!es the problems of Financial 1losure of the 'roject "mpossible. This ris! is mitigated b# achieving necessar# financial closure of the 'roject in the "mplementation /tage. 6. Re+e ue R"s#! Revenue Ris! ta!es place when the project cash flows does not achieves the standards of worst possible case revenues. This is partl# mitigated through 1oncession Agreement& Ta!e or 'a#& $uarantees.

4. INDIAN PORT SECTOR

"ndia has 8D major ports and 8DH intermediate and minor ports (at present& however& onl# FB are active & and DB cater to the Andaman and ,icobar and (a!shadeep and Minico# Archipelagos along its EEIB !m coastline. The "ndian ports handled traffic of DIG.HI million tones in fiscal @BBB:B8 and the total traffic handled at "ndian ports has grown at a compounded annual growth rate of H.BD9 p.a during the period 8HH8:H@ to @BBB:B8. in fiscal @BB8& the major 8D ports accounted for @GB.HI million tones (CI.8E9 of the cargo& while the minor ports (primaril# from $ujarat & accounted for the balance. The minor ports during the same period have shown a faster growth of around @F.HE9 p.a& primaril# due to increased congestion at major ports& an increased development in shore:based industries and initiatives b# state governments in developing the ports within their jurisdiction. "ndian ports suffer from low labour productivit# and low e3uipment efficienc# levels adversel# affecting their operating performance. The main factors contributing to the low productivit# of "ndian ports are.
0perations

constraints such as fre3uent brea!down of cargo handling dredging and container handling facilit# and non:optimal deplo#ment of port e3uipment

e3uipment
"nade3uate "nade3uate (ac!

of proper co:ordination in the entire logistics chain

The major operating parameters related to the port operations are

Tur arou d T"me! Time between a ship arriving at a port and sailing bac!. 're7*erth" g T"me! Time between a ship arriving at a port and getting berthed. Idle T"me! Time during which the loading5unloading operations are not being performed on the ship when the ship is berthed. Idle T"me to Total T"me at *erth! The ratio of the total idle time of the ship and the total time for which it was on the berth. Idle T"me to Total T"me at 'ort! The ratio of the total idle time of the ship and the total time for which it was on port. A+erage )ut$ut $er sh"$ *erth da,! The ratio between total output from the ship and the total number of da#s of occupation of a berth b# the ship.

#u!arat ort Sector

$ujarat& situated on the west coast of "ndia& is a principal maritime state endowed with several strategic port locations. The state has a 8IBB !m long coastline (which is a third of the total "ndian coastline and has a large potential cargo mar!et comprising the northern& western and central "ndian states. 0f the F8 ports in $ujarat& +andla is the onl# major port. The 88 intermediate and @H minor ports fall within the jurisdiction of $M-($ujarat Maritime -oard . $M- has been proactive in terms of encouraging private sector participation in port developments. 0ut of the 8B identified probable site locations b# $M-& port with private sector participation have commenced operations at Mundra and 'ipavav.

$%%& #uidelines
2nder the port polic#& $o$ announced the -uild:0wn:0perate:Transfer (-00T $uidelines in ?ul# 8HHC to serve as framewor! for involvement of private sector in the construction and operation of the 8B identified green field projects& including the Mundra port. 2nder the -00T principles& the ports are to be developed as commerciall# viable entities capable of operating without government support and the responsibilit# of financing the port will rest with the developer. The government will grant license5concession to the private developer to -uild:0wn: 0perate and manage the port facilities for a specific period and permit the developer to create mortgage5h#pothecation of the real estate as securit# for lenders to the project to be limited to the -00T period. The ownership of the land and waterfront will vest with the government. The ac3uisition of land for the project will be the responsibilit# of the $o$5$M-. The land will be allotted on lease to the developer for a term concurrent with the term of the concession agreement. "n order to facilitate the development of the port& the government intends initiating concomitant development of road and rail corridors and industrial par!s. The road and rail lin!ages from the port to the nearest highwa#5railhead will be structured as separate -0T pac!ages and the port developer will have the first preference of underta!ing such development. The ownership rights of developer would include the right to mortgage& h#pothecate or to e)ecute such covenants as ma# be re3uired for effectivel# vesting a charge on the port assets in favor of a lender to the project and the right to sell& conve# or transfer to another part#& the right title and interest and concession vested in the developer& on the re3uest of lender to the project& subject to contractual agreements. The lender in consultation with $M- will select the new developer and if necessar# the terms and conditions of the concession agreement ma# be re:negotiated. The developer ma# operate the port as a full service or as landlord port. The $o$5$M- will permit subleasing of facilities or subcontracting of services provided the developer continues to remain responsible to the $o$ for due performance under the contracted terms and conditions. The duration of the -00T pac!age would be DB #ears and can be considered for period greater than

DB #ears for projects will entail sizeable capital investment on account of site: specific marine conditions and bac!:up infrastructure such as road5rail lin!ages. 'rivate sector can be involved in several wa#s including e)tending of resources& providing state:of:the:art technolog# at project management and maintenance levels. -esides& public:private partnership can be developed on models li!e build:operate:transfer (-0T & build:operate:own:transfer (-00T & build:operate: lease:transfer (-0(T models. and design:build:finance: operate:transfer (%-F0T models. The countr# is #et to adopt full:fledged private sector participation

8. 4U/ARAT A2ANI ')RTS 3T2.

Introduction
$ujarat Adani 'ort (td ($A'( & a compan# promoted b# Adani 'ort (td (A'( in the joint sector with the $ujarat 'ort "nfrastructure and %evelopment 1ompan# (imited ($'"%1( & is underta!ing the development of Mundra 'ort located at ,avinal "sland& ;illage Mundra& dist +achch.

romoters
$ujarat Adani 'ort (td ($A'( is a compan# incorporated on @I th Ma# 8HHG and promoted b# Ahmedabad based Adani $roup and $overnment of $ujarat through $ujarat 'ort "nfrastructure %evelopment 1ompan# (td ($'"%1( for the development of Mundra port as per the port polic# and -00T guidelines of the $o$.

$oard of Directors:
8. -alwant singh 1hairman /ecretar#& 'ort and Fisheries %epartment& $o$ @. $autam /. Adani Managing %irector D. '. ,. Ro# 1haudhur#& "A/ %irector Managing %irector& $'"%1( F. Rajesh /. Adani %irector E. +.,. ;en!atasubramaniam "ndependent %irector I. +.,. /helat %irector "ndustr# 1ommissioner& $o$

$usiness Development
6ith a view to giving a focused thrust to the overall development of the port& an e)ercises has been carried out b# $A'( to identif# bul! customers who would li!e to have an alternative port. $A'( has developed and is in the process of

developing the services and facilities in tune with the re3uirements of bul! users of the port facilities.
'rodu%t '0( 'etrochemicals *dible 0il 1astrol 0il %01& rice Customer "01&1alte)&"-'&/wiss /ingapore(?a#shree &Ruchi Asian 'aints& ,irma& 1.?./hah& 1rescent& Aaresh!umar Andre& 1argill& Ruchi& /o#a& (ibert#& -.Arun!umar /hadiram& $odrej& 6ilmar. Aindustan lever& Minal& M.la!hamshi 'eter 1remer& A.1.Toefer& $ee 'remji& 1argill& ,idera Ruchi& /hivnath Rai& 'ri#an!a& (JT& +- overseas /atnam overseas. *mirates Trading Agenc#& $lencore& -inani 1ement (a)mi cement& *steco& $ee 'remji& Aindustan Kinc. Ashapura Trima)& $impe)& $M%1 Friends& -harat /alt J 1hemical "ndustries /entrans& $lor#& $upta $lobal /hah Allo#s& Tisco /wiss /ingapore& $/F1& *mmsons& Rama 'hospate& ,irma *TA& $/F1& /'"1& "'(& ,F(& /T1& MMT1& +R"-A10& MF(& "ndo gulf fertilizers& "1"& $,F1& Kuari& 1hmbal Fertilisers

1oal Minerals /alt Timber /teel /ulphur Fertilizers

%'servations
8.Mundra port has handled more than CBB vessels till 8E th /eptember&@BB@& carr#ing about H.E million tones of cargo. The connectivit# of railwa#(in ,ovember& @BB8 further boosted the strategic importance of Mundra. The deep draft and the connectivit# of the port to the hinterland has culminated in attracting A'1( and "01( to establish crude oil handling facilities on the port. "n addition& the port has encouraged creation of other industrial activities li!e largest single location edible oil refiner# in the countr# viz. Adani 6ilmar (td at Mundra. @.$A'( is contemplating enhancing the business flow in Mundra through various strategic initiatives& which interalia& include re:positioning the business of port:port related activities and container terminal business.

Revenue Reali(ations: )
The main heads of revenue in $A'( is as under 8. Marine "ncome @. Ro#alt# "ncome D. (ease Rent "ncome F. %evelopment 1harges E. Railwa# "ncome I. /haring of 1ontainer Revenue

Mar" e I %ome
'ort dues and pilot age charges (2/%5$RT -erth hire charges (2/%5$RT5da# B.EC(B.8CLB.DG B.8E

9harfage Charges
Sr. o A 1 % * F $ A " Comod"t, 12r, Cargo 1oal Fertiliser FRM %01 /alt Alumina "ron and /teel Timber Food grains (rice 9harfage Rate :Rs.;T< DB.BB DE.BB DE.BB @B.BB @B.BB EB.BB EE.BB DE.BB DE.BB

? + ( M , 0

0res and Minerals 0thers *dible 0il 0ils 1hemicals '0(:products

@E.BB DE.BB DE.BB DE.BB EB.BB EB.BB

<%ue to confidentialit# clause of compan# other details were not shared.

Details of *oan Funds

$A'( has availed loan from various -an!s and "nstitutions to the e)tent of appro)imatel# Rs.EBB crores and proposed to ma!e the repa#ment of appro)imatel# Rs.@EB crores. "n view of the said repa#ment& $A'( has reduced its interest e)penses on long:term loan& which is ver# important in "nfrastructure project due to their capital:intensive nature. This has resulted substantial saving in interest cost in future and thereb# increasing the profitabilit#. 6ith this bac!ground $A'( is loo!ing for various alternative option to reduce its cost of loan funds. Cor$orate 2e*t Restru%tur" g a"ms to su$$ort %o t" u" g e%o om"% re%o+er, *, e a*l" g +"a*le de*tors to %o t" ue *us" ess o$erat"o s a d $romot" g fa"r a d e=u"ta*le de*t re$a,me t to %red"tors.

The compan# is loo!ing for new alternatives to raise cheaper fund to replace their e)isting debt so what " have done is spotted four alternatives for infrastructure financing and loo!ed at their advantages& disadvantages and suitabilit# to compan# and suggested it to compan# and the four alternatives are 8. "ssuing 1orporate -ond @. /ecuritisation of Future 1ash Flow

D. Funding through 'rivate "nsurance /ector F. Mezzanine Finance " tried to cover all related aspect of each alternative and tried to see that it is feasible for the compan# to e)plore this alternative but due to time constraint and technicalities of port sector and confidentialit# clause some information might not be presented b# me in this report.

>. C)R')RATE .)N2

The f"rst o$t"o for 2e*t Restru%tur" g "s "ssu" g .o d " th"s alter at"+e I ha+e g"+e deta"ls of d"ffere t t,$es of *o d that %om$a , %a "ssue " future? re%e t mar#et tre d *, e@am$le of re%e t *o d "ssues *, some %om$a "es? %red"t rat" g $ro%ess a d " a e@ure SE.I gu"del" es for de*t "ssua %e a d %red"t rat" g s,m*ols of d"ffere t age %"es. According to Mr 'ratip +ar of the /ecurities and *)change -oard of "ndia (/*-" & MM"nfrastructure financing is predominantl# a structured debt finance and places a higher burden on the capital mar!et to raise debt resources. A vibrant bond mar!et thus becomes a necessar# condition for infrastructure financing.44

Though infrastructure projects are capital:intensive with long gestation periods& infrastructure bonds being low:ris! guaranteed or secured debt& fetching a return of 88:8F per cent& are an attractive investment proposition. Than!s to the various ta) e)emptions& the F"s are able to earn a better spread b# lending to infrastructure companies& through such bonds. 1learl#& a vibrant debt mar!et which allows full pla# to investors :: institutional and retail :: to lend and borrow and emplo# a variet# of trading strategies is just as necessar# for speed# development of infrastructure. Ta) incentives are not enough.

$ond
-ond refers to a securit# issued b# a compan#& financial institution or government& which offers regular or fi)ed pa#ment of interest in return for borrowed mone# for a certain period.

Different types of 'onds that are useful for infrastructure pro!ects

1.Assumed *o d 2.Calla*le *o d 3.Com*" at"o *o d 4.Co sol"dated *o d 5.Co +ert"*le *o d 6.2ual %urre %, *o d 7.2ollar *o d

8.Euro*o d 9.4uara teed *o d 10.I %ome *o d 11./u # *o d 12.Mortgage *o d 13.Se%ured *o d 14.Suret, *o d 15.Aero7%ou$o *o d

Recent Corporate $ond Issues

Total Name )f Com$a , Issue Rat" g Rat" g Age %, Cou$o 88.BB& 88.@E& 88.EB9 respectivel C& 8B J $M"%1 DFH,1% # 88.BB& 88.@E& $ujarat *lectricit# -oard DEB,1% 88.EB9 respectivel C& 8B J # 88.BB& 88.@E& 88.EB9 respectivel C& 8B J M+;%1 DBB,1% --(/o 1AR* # 88.BB& 88.@E& Maharashtra 'atbandhar DEB L e ;itti#a $/ 8EB ,1% ---(/o 1AR* 88.EB9 respectivel C& 8B J # 8@ E& C J8B Feb 8G Apr @E @BBD @BBD 8@ E& C J8B Feb @C Apr DB @BBD @BBD 8@ E& G J8B Ma# Mar D D8 @BBD @BBD 8@ E& C J 8B respectivel Mar F Ma# @ # @BBD @BBD Te or:" 'ut;Call ,rs< )$t"o )$e Close 2ate 2ate %r< t the Issu" g S"&e:Rs I strume

(arsen J Toubro (td "ndus"nd -an! (JT Aoldings (imited (JT Aoldings (imited +on!an "rrigation %evelopmen IB L $/ t 1orp ;idarbha "rrigation %evelopmen t 1orporation FBB L (;"%1 "%-" -an! "ndian Railwa#s Finance 1orporation ("RF1 "ndian Railwa#s Finance 1orporation ("RF1 Ta)able @EE,1% IB L $/ Tier "" %ena -an! FB -an! of -onds 2nrated AAA 1R"/"( Ta):Free CC,1% AAA 1R"/"( $/ 8BE ,1% Tier "" FE-onds @H.E ,1% --(/o 1AR* @B,1% AAL(/0 1R"/"( DB,1% AAL(/0 1R"/"( DEFRTier "" DE.E-onds AAL

,/* Mibor 1R"/"( L 88B bps G9 8.BF E.@E

Apr 8 Apr 8 8@BBD @BBD Mar D8 @BBD Mar D8

G9

@BBD Mar D8

C.GE9 88.BB& 88.@E& 88.EB9 respectivel C& 8B J # 88.BB& 88.@E& 88.EB9 respectivel C& 8B J # G.FB9 8@ 8@

@BBD

Feb @I E& C J8B Mar D8 @BBD @BBD

Mar I Mar D8 E& C J8B @BBD @BBD Mar D8 @BBD

C.@E

Mar D8 E.@B9 E @BBD

Mar D8 I.HG9 8B Mar @E C9 E.@E Mar @H @BBD @BBD Mar @B 2nrated C9 C9 E.@E C.BG Mar @H @BBD @BBD Mar Mar @G @BBD

EB L $/ Tier "" -onds

Maharashtra EB Allahabad

EB L $/ Tier ""

8@ -an! ,ational Te)tile 1orporation (,T1 8CF,1% AAA(/0 1R"/"( C.CE9 C.8B& C.DB and C.EB9 Ta)able A2%10 8BB,1% AAA(/0 Fitch respectivel # I.8B& I.DB and I.EB9& for E& C J 8B #r maturities respectivel A2%10 EB AAA (/o Fitch # I.8B& I.DB and I.EB9& for E& C and 8B #r maturit# Ta):Free A2%10 Federal -an! EB,1% Tier "" 8EB-onds AL Fitch I.CB J I.HB9 1anara -an! ,A-AR% FBB L Tier "" "1RA 1R"/"( respectivel C.BG J # E.@E9 8B.BG E Mar E Mar 8E @BBD @BBD Mar E Mar 88 @BBD @BBD $/ 8BB -onds (AAA Ta):Free @BB,1% AAA Ta):Free 'riorit# /ector ,A-AR% @BB,1% AAA 1R"/"( E.8B9 E Mar E Mar 88 @BBD @BBD G9 I.@E AAA (/o Fitch respectivel # 8BE J C #rs Mar C Mar @E @BBD @BBD ?an 8E Mar 8H @BBD @BBD 8BE J C #rs Mar C Mar @E @BBD @BBD 8BE J C#rs Mar C Mar @E @BBD @BBD E EB -onds @BBD @BBD Mar @G Mar @G @BBD @BBD

6ith man# bond issues& the issuer is re3uired to retain some portion of the proceeds from sale of the bonds& sometimes as much as 8B9& as a reserve fund.

This increases significantl# the imputed interest cost of the bonds. A E9 face value issue might actuall# cost the issuer E.E9 appro)imate due to the cost of the reserve. "ssuance cost (one time will be nearl# @:D9 of bond issue that includes all legal obligations and credit rating e)penses. /o b# loo!ing at the above details $ujarat Adani 'ort (td can issue bond with coupon rate 889:8F9 and as per m# view the# should go for following t#pes of bonds to raise mone#

Assumed 'ond -ond which is issued b# one corporation but whose liabilit# is ta!en on b# another corporation. This bond the# can issue because $A'( is new compan# the# dont have an# proven reputation in mar!et so the# can issue this bonds and liabilit# can ta!en over b# Adani *)ports (td. 6hich is flagship and ver# reputed compan#. Calla'le 'ond A bond& which the issuer has the right to redeem prior to its maturit# date& under certain conditions. 6hen issued& the bond will e)plain when it can be redeemed and what the price will be. "n most cases& the price will be slightl# above the par value for the bond and will increase the earlier the bond is called. A compan# will often call a bond if it is pa#ing a higher coupon than the current mar!et interest rates. -asicall#& the compan# can reissue the same bonds at a lower interest rate& saving them some amount on all the coupon pa#ments= this process is called 7refunding.7 2nfortunatel#& these are also the same circumstances in which the bonds have the highest price= interest rates have decreased since the bonds were issued& increasing the price. "n man# cases& the compan# will have the right to call the bonds at a lower price than the mar!et price. "f a bond is

called& the bondholder will be notified b# mail and have no choice in the matter. The bond will stop pa#ing interest shortl# after the bond is called& so there is no reason to hold on to it. 1ompanies also t#picall# advertise in major financial publications to notif# bondholders. $enerall#& callable bonds will carr# something called call protection. This means that there is some period of time during which the bond cannot be called. Also called redeemable bond. 0pposite of irredeemable bond or non:callable bond. $A'( can go for this bond because as per the current mar!et condition we can not predict an# thing about interest rate scenario so better to have bond with callable option so in adverse condition we can not get into trouble b# pa#ing higher interests. Com'ination 'ond A bond which is bac!ed both b# revenue from the project for which the borrowing is being done as well as b# the full faith and credit of the compan# issuing it. Converti'le 'ond A corporate bond& usuall# a junior debenture& that can be e)changed& at the option of the holder& for a specific number of shares of the compan#4s preferred stoc! or common stoc!. 1onvertibilit# affects the performance of the bond in certain wa#s. First and foremost& %o +ert"*le *o ds te d to ha+e lower " terest rates tha o 7%o +ert"*les because the# also accrue value as the price of the underl#ing stoc! rises. "n this wa#& convertible bonds offer some of the benefits of both stoc!s and bonds. 1onvertibles earn interest even when the stoc! is trading down or sidewa#s& but when the stoc! price rises& the value of the convertible increases. Therefore& convertibles can offer protection against a decline in stoc! price. -ecause the# are sold at a premium over the price of the stoc!& convertibles should be e)pected to earn that premium bac! in the first three or four #ears after purchase. "n some cases& convertibles ma# be callable& at which point the #ield will cease.

B.SECURITISATI)N
/ecuritisation is a Financial "nstrument& which serves to the basic needs of the *conom# i.e. (ong Tenure& (ow 1ost of 1apital and Mar!et acceptable. The 0bjective of the 7True /ecuritisation7 is to create a multiple assets generation at a lower 1ost of 1apital while protecting the -eneficial "nterest of the "nvestors. The "nfrastructure /ector is the biggest 1apital %eficit /ector of "ndian *conom#= it re3uires Financial *ngineering and "nnovations to Fund the "nfrastructure 'rojects. 0ne of best the solution to this problem is 7/ecuritisation7.

The objective of this stud# is to understand the concept of /ecuritisation and how it can be helpful to $A'( in %ebt Restructuring.

The scope of wor! of includes to understand the basic concept of /ecuritisation& its applications and the techni3ue that can be used on "nfrastructure %evelopment and Financing. The scope of 6or! is (imited to "nfrastructure 'rojects Funding in $A'(.

Introduction to Securitisation
/ecuritisation is the buzzword in toda#4s 6orld of Finance. "t4s not a new subject to the developed economies. "t is certainl# a new concept for the emerging mar!ets li!e "ndia. The Techni3ue of /ecuritisation definitel# holds a great promise for a %eveloping 1ountr# li!e "ndia. 0ne of the Major "ssue in the %evelopment of "nfrastructure /ector in "ndia is the availabilit# of the long:term resources for the sector. 0ne such financial

innovation to raise a long:term resource is 7/ecuritisation7. /ecuritisation is the Financial "nstrument of the new Millennium. /ecuritisation is 7/tructured 'roject Finance7. The financial instrument is structured or tailored to the ris!:return and maturit# needs of the investors& rather than a simple claim against an entit# or asset. The popular use of the term /tructured Finance in toda#4s financial world is to refer to such financing instruments where the financier does not loo! at the entit# as a ris!. but tries to align the financing to specific cash accruals of the borrower.

Definition
Traditionall# there are man# definitions of 4/ecuritisation4. *ach definition aims at defining this Financial ?argon. /ome of the definitions are. : 7/ecuritisation is the process of pooling and re:pac!aging of homogenous illi3uid financial assets into mar!etable securities that can be sold to investors.7 7*ver# such process which converts a financial relation into a transaction.7 7The 1reation of a /ecurit# based on a stream of 1ash flows& such that the securit# is li3uidated b# 1ash Flows. "n simple words. : 7/elling the 1ash flow generated from the assets (either e)isting or future against the charge of the assets& b# converting them into homogenous mar!et negotiable instruments is !nown as /ecuritisation.7

&he meaning of Securitisation can also 'e e+pressed as: )

/ecuritisation is the process of commoditisation. *ver# application of securitisation ends into the mar!etabilit# of the Financial "nstrument into the 1apital Mar!et. Thus /ecuritisation aims at 1ommoditisation of the illi3uid financial claims. /ecuritisation is the process of "ntegration and %ifferentiation.

The process of securitisation integrates all the illi3uid financial claims or loans (pooling and then differentiates them into mar!etable lot securities (homogenous .

,eed for Securitisation

The mar!et size per investor comes down as the number of investor goes on increasing. The small investor is not a professional investor. Ais basic re3uirement is to invest in an instrument& which is eas# to understand& and is easil# li3uidable. This is need of the investor& innovated into a new financial instrument i.e. 7/ecuritisation7. The world of finance prefers /ecuritised "nstruments due to the following reasons. .orrowers re=u"res h"gh amou t of %a$"tal. This is clearl# outside the range of the small investors. This difficultl# was sorted out b# the financial intermediation of the -an!5F"s where the ban! would pool the resources of the investors4 savings and in turn the# lend the capital pooled to the borrowers. Small " +estor "s ot a $rofess"o al " +estor. The small investor understands homogenous& li3uid& eas# to understand and mar!et tradable instrument. The importance of li3uidit# is high for the small investor. F"s cannot li3uidate the investment directl# to the investor in a small run as this would definitel# lead to asset:liabilit# mismatch. Thus& an eas# to understand homogenous financial instrument with eas# li3uidit# features holds a great promise in the world of finance. Moreover a credit rating label on such a Financial "nstruments increases the investors4 confidence in such an investment.

-conomic Significance of Securitisation

The economic impact of securitisation is as follows. Se%ur"t"sat"o Redu%es Cost of Ca$"tal! /ecuritisation tends to eliminate fund:based intermediation. The intermediar# in the process turns down to a specialized service oriented firm and thus charges some reasonable fees& which is lower than the fund based intermediation costs. Se%ur"t"sat"o E %ourages Sa+" gs! /ecuritisation encourages savings& the investors gets best benefits b# investing in securitised paper. Se%ur"t"sat"o %reates eff"%"e t 0" a %"al Mar#ets /ecuritisation changes the roles of the financial intermediar# from a fund:based activit# to a service based activit#. A service:oriented mar!et is more efficient than a fund based mar!et. Se%ur"t"sat"o 2"+ers"f"es R"s# /ecuritisation diversifies ris! b# creating different tranches in the t ransaction. Se%ur"t"sat"o 0o%uses o the use of the resour%es a d ot the"r ow ersh"$ The "nvestors does not loo! at the originator& but his interest lies in the performance of the asset.

Features of Securitisation
The following are the features of the /ecuritisation. 1. Comoge ous 'rodu%t The securitised instrument is a designed in a homogenous 3uantit# and mar!et acceptable lot. -. Mar#eta*"l"t, a d Mer%ha ta*le Dual"t, The "nstrument is homogenous mar!et acceptable lot and as it is generall#

consist of the rating label& so it is of merchantable 3ualit# also. For Merchantable >ualit# the instrument should also posses the feature of the wide distribution also. 1. S$e%"al 'ur$ose Veh"%le The "nstrument is issued b# a /';& the structure of the /'; is designed in such a manner that the /'; remains 7-an!ruptc# Remote7 from the 0riginator. Thus the "nvestors -eneficial "nterest is protected in this manner. 6. Re%ourse /ecuritisation is an asset bases structured financing concept& the investors holds the beneficial interest in the assets so it should be a non:resource featured. (imited Recourse is done b# the 0riginator to enhance the credit rating of the transaction.

8. Assets 0eatures The assets should have the following features. 8. "t should represent cashflows @. "t should have high level of comfort i.e. 3ualit# of receivables should be good. D. "t should be isolated from the 0riginator. F. "t should be free from withholding ta)es 5 pre paid ta)es. E. The pool of the assets should contain homogenous assets. I. "t should have periodic pa#ments.

>. Issuer 0eatures The following t#pes of companies are the originators of the securitisation e)ercise. 8. Real *state Finance 1ompanies @. Auto Finance 1ompanies D. 1redit 1ard 1ompanies

F. Aoteliers E. 'ower $enerating and Telecom 1ompanies I. -an!s C. "nfrastructure 'roject 1ompanies li!e Toll Road 1ompanies. B. I +estors Most of the "nvestors in the securitised instruments are professionalised investors which include F"s& Mutual Funds& Aigh ,et worth "nvestors& etc.

$asic rocess of Securitisation

The basis process of /ecuritisation is e)plained in the following steps. : 1. Est"mat"o of the Cash 0lows The originator estimates the cash flows from the underl#ing assets. For this purpose& the originator uses his historical data. Appropriate and accurate calculations are done !eeping in view of the pre pa#ments rates& amortization& etc for estimation of the cash flows. -. Creat"o of S'V The ne)t step is to create a /';. The basis logic behind the creation of /'; is. a. To isolate the underlying assets from the originator. This is an important step in the whole process as the ultimate result of this is 7-an!ruptc# Remoteness7 from the 0riginator. b. Aggregation of the underlying assets into Pool. Thus the assignment of the cash flow to the /'; is done in this manner. 1. S'V "ssues se%ur"t"es; otes to I +estors The /'; formed (Trust 5 MF 5 1orporate Form now issues securities5notes to the investors to invest in the securitised e)ercise done b# the originator.

6. I +estors 7 'ro%eeds of the "ssue of se%ur"t"es to S'V The collection from the investors for there investment in the securitised instrument is proceeds to the /';. /'; in turn channelises this proceeds to the 0riginator. 8. Colle%t"o a d Ser+"%" g from the )*l"gors The 0riginator generall# performs this function. "n some cases& specialised servicing agents are appointed to collect and service from the loan obligors. >. 'ass )+er to the S'V "n this step the /ervicing agent passes the collected pa#ments from the obligors to the /'; less his fees. B. Re" +estme t of Cash 0lows The /'; if permitted does reinvestments of the proceeds from the /ervicing agent ($enerall# in the 'a# Through /tructures and in turn receives the reinvestment proceeds also. "f the structure of the instrument is 'ass through /tructure then directl# /tep no. G is followed after /tep no. I. E. 'a,me t to the I +estors The "nvestors earns on his investments b# receiving the proceeds from the /';. %epending upon the structure of the "nstrument the pa#ment of the investment is done to the "nvestors. F. )r"g" ators Res"duar, 'rof"t After the pa#ments done to the "nvestors if an# residuar# is left that is passed on the 0riginator as his residuar# profit& which is generall# maintained& b# the originator for the over:collaterisation and guarantee purpose.

Different Forms of Securitisation Structures

1< 'ass Through Stru%ture! 8."nvestors get a proportional interest in pool of receivables. @.Monthl# 1ollections are divided proportionall# among the "nvestors. D.All the investors receive proportional pa#ments : no slower or faster pa#ments. F.Refinement can be done in the form of 4/enior4 or 4?unior4 investors to enhance the credit rating of the transaction. E. 're:pa#ments are passed on to the "nvestors. I. ,o reinvestment of cash collected. C. Thus& /'; is a passive conduit.

'ass Through Stru%ture!

-< 'a, through Stru%ture! 8./tructure is almost similar to the %ebt instrument& but with an off balance sheet treatment to the originator @."nvestors get a proportional interest in pool of receivables. D./'; reinvests the amount collected generall# in a AAA rated paper ($uaranteed "nvestment F. "nvestors are serviced on the dates of the schedule pa#ment= the pa#ment for this is released from the Receiving and the 'a#ing -an! Account. E. 're:pa#ments are reinvested in the $uaranteed "nvestment 'aper. I. Thus& /'; is an active conduit.

'a, Through Stru%ture!

$enefits of Securitisation
The following are benefits of /ecuritisation to the "ssuer. : 8. (ower 1ost @. Asset : (iabilit# Mismatch solution D. %ictation of the rating for the transaction F. Retail %istribution of the asset E. Multiple asset creation abilit# I. 0ff balance sheet financing C. Relief in 1apital Ade3uac# re3uirements G. "mprovement in the 1apital /tructure H. ,ot regulated as loan 8B. Avoids "nterest rate ris!s 88. *scapes ta)es based on interest

The follow" g are the *e ef"ts of Se%ur"t"sat"o to the I +estors!

8. -est Rating "nvestments. @. -etter Matching with investment objectives. D. 'erfect tool of Aedging. F. (esser Regulations. E. Aigher Nields on "nvestment.

A$$l"%at"o s of Se%ur"t"sat"o
Following are the mostl# used applications of securitisation. 8. Residential Mortgage -ac!ed /ecuritisation. @. 1ommercial Mortgage -ac!ed /ecuritisation. D. Auto (oan /ecuritisation. F. *3uipment (ease /ecuritisation. E. 1redit 1ard Receivables /ecuritisation. I. -an! (oan /ecuritisation. C. Aircraft (ease /ecuritisation G. "nsurance Ris! /ecuritisation

H. "ntellectual 'ropert# Rights /ecuritisation 8B. Future Flow /ecuritisation For $A'( most important is Future Flow /ecuritisation because in this future cash flow is securitised at securit#.

The Indian Experience

/ecuritisation began in "ndia in the earl# nineties. 1R"/"( rate the first securitisation programme in "ndia in 8HH8 when 1itiban! securitised a pool from its auto loan pool and placed the paper with $"1 Mutual Fund. The volume involved was about Rs. 8I crores. The Rating Agencies e)perience has so far in the asset:bac!ed securities has been good. Reportedl#& there have been a few unrated transactions in the mar!et.

&ype of Assets
"n terms of the asset profile& car loan5hire:purchase receivables account for over IE9 of the transaction with the rest being accounted for b# truc! receivables. Aigher #ields and relativel# low delin3uencies in auto loans in general are the main reasons for this asset categor# being preferred for securitisation. -ecause of the inherent higher #ields in auto loans& the originator could offer attractive #ields to the investor and still boo! profits. There has been onl# one transaction of securitisation of housing loan till date. 6hile three are some legal hurdles li!e the absence of the foreclosure laws& the main reason has been the low #ield inherent in this asset categor#. 6hile the interest rates on auto loans are generall# higher than the housing loans rates. Auto loans are presentl# in the range of 8F9 to 8G9 while housing loans are in the range of 88.CE9 to 8E9. /ince the interest rates were ruling high till recentl#& it was not possible for the originator to offer competitive #ield to the investors without boo!ing losses. The long tenure of housing loans was another problem& as housing loans are t#picall# for nearl# 8E #ears of tenure and not man# investors have appetite for such long tenure securities.

%riginators
The originators in the transactions rated in the past include 1itiban!& Asho! (e#land Finance (td& @Bth 1entur# Finance 1orporation (td& Tata Finance (td& etc have securitised there loans. Alternate funding& asset5liabilit# mismatch correction and profit boo!ing have been the main motivating factors for these originators.

Investors
"nvestors in A-/ in the past have been "nstitutional "nvestors& Multinational -an!s and Mutual Funds.

Cost of Securitisation
%ifferent cost involved in a securitisation are the interest rate (discount rate given to the investors& cost of maintaining cash collateral& stamp dut#& /'; e)penses& legal fee and the rating fee. The interest rate is the rate used to discount the future cash flows of the pool to arrive at the consideration to be paid. The cost of maintaining cash collateral is the interest income foregone due to bloc!ing of funds in the collateral. /tamp dut# differs along the different states. "n E states viz Maharashtra& $ujarat& +arnata!a& Tamilnadu and 6est -engal have reduced reduced stamp dut# on securitisation transaction to B.89. /'; e)penses would be the fee pa#able to the /';. 0ften it ma# not be necessar# to from a compan# to act as the /';& if one of the e)isting investment companies could be used as /';. The legal fees is normall# a lump sum& not directl# related to the volume of the transaction. Rating fee has two components viz the rating fee and the surveillance fees. Most of the Rating Agencies li!e 1R"/"(& 1AR*& "1RA& Fitch "ndia& etc charges initial fees as B.89 of future receivables for the first #ear and the surveillance fee is B.BE9 of remaining receivables for ever# #ear of surveillance. For a Rs. EB 1rore transaction with a 8B9 cash collateral& cost other than the coupon rate on the A-/ could be about B.CE9 p.a. if the rate of the discount or the coupon rate on the A-/ is 8@9 p.a.& total cost could be around 8F.CE9 p.a. inclusive of the stamp dut#& legal fee& rating fee and interest fee and interest loss

on the cash collateral. "f other forms of credit enhancement li!e over: collateralization is used& interest loss on the cash collateral could be reduced thereb# reducing the overall cost.

-+tent of Credit -nhancement

The level of the credit enhancement has varied between C9 to @E9 of the receivables securitised for an AAA rating depending upon the 3ualit# of the portfolio and the pool. The e)tent of credit enhancement has shown a decline over the #ears. "n the 2nited /tates& the minimum credit enhancement goes lower to D9 to F9 of the principal amount.

*i.uidity
Man# of the securitisation issue are listed at the 6holesale %ebt Mar!et of the ,/* and a mechanism of mar!et ma!ing is also incorporated in some of the issues. (i3uidit# in general for all debt instruments could be considered to be better in "ndia. (ac! of awareness could further reduce the li3uidit# in case of A-/ or RM-/.

/a!or Constraint of Securitisation in India

3egal Issues
Transfer of a loan amount to conve#ance and hence is subject to the stamp dut#. As stamp dut# on conve#ance comes under the purview of the /tate& the stamp dut# is different in different states. Aigh level of stamp duties would ma!e the securitisation transaction uneconomical. Maharashtra& $ujarat& Tamilnadu& +arnata!a and 6est -engal have reduced the stamp dut# pa#able on securitisation transactions involving some asset classes substantiall# in order to encourage the development of this instrument. "n some of the other states& the incidence of stamp dut# is as high as 8D : 8F9.

Absence of foreclosure laws and slow legal process in "ndia are areas of concern. "deall#& a separate legislation recognizing the rights of the investors in A-/ or their trustees to effectivel# recover the dues from the underl#ing obligors without the involvement of the originator and without having to approach the 1ourt would help develop the mar!et for securitisation. This& however& would be a time consuming process. There are some uncertainties with regard to some legal issues li!e stamp dut# on transfer of 'T1s. "t would help if the concerned authorities issue clarification in this regard. As securitisation is a relativel# new concept& there have not been an# legal cases in this area. "n the absence of the same& it is not !now how 1ourts would view these transactions and how the investors stand vis:O:vis the originator in the event of ban!ruptc# of the originator. "n the absence of the same& one would have to go b# professional advice.

&a+ation Issues
These are uncertainties regarding ta)abilit# of /';s& applicabilit# of Ta) %educted at /ource (T%/ to 'T1s& treatment of interest ta) post securitisation& etc. As regards to securitisation of housing loans& there was uncertaint# as to who would issue the certificate confirming the pa#ment of principal and interest to enable the borrowers to claim ta) concessions. /ome clarification from the Ta) Authorities in this regard would be beneficial. O Accounting "ssues There is no accounting guidelines on the treatment of securitisation transaction in the boo! s of the originator and the investors. The "nstitute of 1hartered Accountants of "ndia would issue the guidelines in this regard in the coming months.

*ac" of &hird arty Servicers

"n securitisation Transaction& normall#& the originator acts as the servicer for the securitised pool of assets. To that e)tent dependence of the originator continues even after the sale of receivables. Though the agreement provides for the investors to change the servicer in case the# are not satisfied with the performance of the servicer& in "ndia& the efficac# of alternate servicer needs to be full# tested.

*ac" of data across economic cycles

(ac! of long trac! record of performance of assets over economic c#cles is not available in "ndia. This is because housing and consumer loans in the organized sector is not as old in "ndia as it is in the developed countries. "n the 2/ for e)ample& the historical performance of mortgages for decades including the great depression of 8HDB are available. The !ind of database helps one to predict the behavior of assets in adverse conditions better.

*ac" of sophisticated Information Systems

A sophisticated information s#stem is ver# important for securitisation. The information re3uirement of rating agencies is fairl# detailed both at the time of initial rating and subse3uent surveillance. 1urrentl#& not all originators s#stems are full# geared to meet the information re3uirements.

Co)mingling of Cashflo0s
The ris! that the cash flows from the securitised pool would get mi)ed with those of the originator is referred to as co:mingling ris!. "f the originators rating is not high this presents a problem. "nternationall#& a time limit is specified within which the pool of cashflows should be transferred to the designated account. This could pose a problem& if the contracts in the securitised pool are geographicall# dispersed across man# states and regions. There is a lac! of 3uic! fund transfer s#stems in "ndia. Aence& more time ma# have to be allowed for the transfer of funds.

Future rospects of Securitisation in India

/ince late eighties& when securitisation made its beginning in "ndia& the number as well as the size of transactions has grown over the #ears. This trend is li!el# to continue and the mar!et would witness considerable growth in the coming #ears. 1urrentl# the annual disbursement of truc! loans is estimated to be around Rs. 88&BBB 1rores and the same for the car loans has been estimated to be around Rs. G&BBB 1rores. The outstanding housing loans to individuals as of now are estimated to be around Rs. 8B&EBB 1rores. These figures are indicative of the volume of securitisation that is possible. "t would help in the development of A-/ mar!et particularl# the mortgage bac!ed securities (M-/ mar!et& it some incentives are given to these instrument in the form of fiscal incentives li!e ta) concessions. For e)ample& M-/ could be declared as eligible investments b# provident funds and pension funds and could be declared as "nfrastructure -onds. /o far& companies securitised assets to raise funds without adding to borrowings. This helped companies which had high debt e3uit# ratio. The motivating factor in some securitisation transaction in the past was the abilit# to boo! profits upfront. 6hile these could continue to be demanded drivers for securitisation. /ecuritisation is li!el# to be increasingl# used for better asset liabilit# management. As securitisation replaces long to medium term assets b# cash& the weightage average maturit# of assets of the compan# comes down. This is a big comfort& as t#picall#& ,-F1s were funding three:#ear assets with one #ear fi)ed deposits. Further& the ,-F1s which are re3uired to bring down the e)cess deposit level could use the proceeds of securitisation to retire the fi)ed deposits. Traditionall# in the fund based business segment of the financial services sector in "ndia& a single entit# was engaged in the entire gamut of activities viz raising funds& locating borrowers& credit appraisal of the borrowers& servicing of the loans and recover#. 0wing to the rapidl# changing environment& some !ind of realignment is li!el# to happen in this sector. 0ne could see some specializations emerging in the mar!et. "n developed economies& particularl# in the mortgage

mar!et& there is a lot of specialization. T#picall# in these mar!ets a single entit# could not perform more than one or two of the activities mentioned earlier. This is also in line with the increasing emphasis on 7core competence7. "nstead of an entit# engaging in all the activities& it ma!es sense to focus on a few areas where it has competitive advantage. The trend is alread# visible in the auto loan sector. 0wing to man# regulator# changes& man# ,-F1s are finding it difficult to raise funds at competitive rates. These ,-F1s& however& have a relativel# low cost distribution networ! in place to originate and service loans. 0n the other hand& large companies and Foreign -an!s find that it is not economical to create a large distribution networ! in terms of e)tensive branch networ! across the countr# due to their high cost structure. Aowever& these companies& given their size& parent support& managerial talent and a high credit rating have a much stronger funding capabilit#. /ecuritisation could be effectivel# used to combine these two complementar# pool of resources. ,-F1s could originate loans and securities them and sell to large companies. And the# could use the proceeds of the sale to originate more loans and the process could go on. The small ,-F1s could continue to service the loans which would ensure a stead# flow of fee income. 6hile man# transactions are under wa# in the auto loan sector& this trend has also e)tended to housing sector also. "n housing finance the funding re3uired is of a much longer tenure and thus far more difficult to raise.

Securitisation 0ill 'enefit infrastructure financing 'ecause it: )

< 'ermits funding agencies whose sector e)posures are cho!ed& to continue funding to those sectors. < 'ermits the participation of a much large number of investors b# issue of mar!etable securities. < (owers the cost of funding infrastructure projects= long term funding ( a sine 3uo non for most infrastructure projects is more feasible in securitised structures

than conventional lending. < facilities ris! participation amongst intermediaries that specialise in handling each of the components of ris!s associated with infrastructure funding (while these ma# initiall# be borne b# regular financial intermediaries and insurance companies& it is e)pected that specialized institutions would develop over time < /hifts focus of funding agencies of to evaluation of credit ris! of the transaction structure rather than overall project ris!. This is because the other components of project ris! would be borne b# specialized intermediaries at a fee cost. Thus& in a nut shell securitisation will change the project evaluation parameters to an e)posure driven b# 1redit Rating of a transaction structure rather than overall project ris! and also securitisation will facilitate participation of a large number of investors b# ensuring tradabilit# of issued ,egotiable "nstrument ('articipation 1ertificates . Thus these considerations would facilitate the process of financial intermediation for resource raising of fund "nfrastructure 'rojects. The outcome of which will reduce the cost of funding for "nfrastructure 'rojects in the long run.

Se%ur"t"sat"o

wor#s o

the $r" %"$le of u *u dl" g %ash flows 7

Custom"&" g r"s# a d E+ol+" g Su$er"or %red"t stru%ture < "n the 1onventional financing pattern is. : %riven b# credit e)tended in the form of non:tradable loans : 'roject ris! compensated b# high cost of debt : /ponsor comfort and 7right7 to project cash flows : +e# driver < /ecuritisation in "nfrastructure Financing will. : : %isseminate ris! b# identif#ing ris! parameters . Allocate cash flows to lenders5investors . (everage on structure of infrastructure projects : >uasi $overnment ris! : (ending driven b# 1redit Rating of /tructure rather than overall project ris!

: 'articipation of a large number of investors . Tradabilit# of loans : 'articipation 5'ass thru 1ertificates Thus the whole mechanism results in the reduction in cost of capital for the "nfrastructure 'rojects.

olicy /easures Re.uirements for ort sector

'ort a. /ectoral Framewor! : -ac!ground and "ssues. "ndia has a long coastal line dotted with over 88 major ports and 8FB minor ports. Major 'ort Trust of "ndia manages the major ports and the minor ports are managed b# /tate Maritime -oards. The major ports handle over GC9 of all "ndia sea:borne throughput of cargo aggregating million tons annuall#. The port infrastructure can effectivel# handle millions tons of cargo annuall# and is operating at optimal levels. "t is estimated that "ndia re3uires port handling capacit# of EFB.E8 millions tons (@BBE:BI . The port sector in "ndia is governed under the "ndian 'ort Act& 8HBG and the Major 'ort Trust Act& 8HID. These acts have permitted private sector investment in the following manner. 8. /etting up of major ports at several locations across the coastline. The states of Maharashtra& $ujarat and Andhra 'radesh have embar!ed on development initiatives in this segment. @. 'rivatisation of support services at major ports. $overnment of $ujarat has identified 8B $reenfield 'ort 'rojects and has seen substantive "nvestment from the 'rivate sector for the development of the 'ort /ector in the sate of $ujarat b. Financial 0utla# re3uired in 'ort /ector . The investment outla# re3uired b# the 'ort sector is estimated at Rs. GBBB crores in the ,inth 'lan and an annual outla# of Rs. HED crores was provided for the

financial #ear 8HG:8HHH. "t is proposed that EB9 of capital re3uirement i.e. Rs. FBBB crore would be raised from the private sector.

Relevance of Securitisation of ort Sector of Infrastructure

'ort Se%tor! The revenues of t#pical port projects would be in the nature of stowage and loading revenues levied on ships which stop at the port of call. "n addition& ports tend to provide storage facilities for chemicals& cargo& petroleum products& etc. to several large companies. The port authorit#5operator contract such storage facilities for a long tenure. The port revenues of this nature are amenable to securitisation.

Criteria for structuring securitisation transaction

<Assets or 1ash flows should be of an operative nature and it should li!el# to be translated into a cash flow at a future date with minimal ris! of performance < "solating 1redit ris! of the 0riginator (0wner of such assets or receipt of cash flow from that of the 0bligor ('a#or for the obligations5asset sought to be securitised <*volving a 7ban!ruptc#7 remote structure for the transaction i.e. a transaction structure which will not be impacted b# the ban!ruptc#5default of the 0riginator of the cash flows. This is conventionall# achieved through. a. 7True /ale7 of cash flow or the 7right7 to receive cash flow. b. /etting up of an independent 7/pecial 'urpose ;ehicle7 which would provide an appropriate framewor! for capital mar!et participation. <1redit enhancement based on the following principles. a. 1redit rating5standing of the 0bligor b. 'roviding ade3uate collateral for investors participating in the 7securitised7 paper c. *volving a suitable ris! framewor! compromising of 7/enior7 investors who have the first 7right7 on cash flows and 7/ub:ordinate7 investors who would bear significant portion of the credit ris! on the 0bligor.

The advantage for 0riginators would be realising an upfront cash flows in e)change of future receipts which would be 7securitised7 in favor of the /'; and its investors.

The following diagram e)plains structuring of the securitisation transaction for the "nfrastructure 'roject. :

2"agram! Stru%tur" g Se%ur"t"sat"o Tra sa%t"o -ased on the structuring of the Transaction& securitisation can be applied in the 're:"mplementation /tage and also in the 'ost 1ommissioning /tage.

0eatures of the tra sa%t"o ! 8.2nder the -0T law& 1oncession agreement is signed between the "nfrastructure 'roject 1ompan# (/'; & the 'roject /ponsoring 1ompan# e)ecutes the *'1 contract on behalf of the /';. @. The 'roject /ponsoring 1ompan# provides credit enhancement in terms of cash collateral or guarantees or stand b# finance facilit# to enhance the credit rating of the transaction. D. The 'roject (enders are paid bac! b# the project cash flow. F. 'roject Ris! is mitigated partl# b# the concession agreement here. E.The whole e)ercise will be an off balance sheet financing treatment for the project sponsoring compan#.

Securitisation in the ost Commissioning Stage

< "n the 'ost 1ommissioning /tage& there is Multiple 'roject Ris! 'articipation can be attracted to optimize the cost of fund. < The 'roject Ris! is almost diminished in the 'ost 1ommissioning /tage. <Thus in this manner a large number of "nvestor base can be attracted in the Financing of the "nfrastructure 'rojects. The diagram of 7relevance of the securitisation on Road /ector7 e)plains the process of securitisation in the post commissioning stage.

$enefits of Securitisation in infrastructure financing

The Major -enefits of /ecuritisation in "nfrastructure Financing. : <Reduction in the 1ost of 1apital O Alternative /ource of Fund. < Techni3ue of Ris! Mitigation.

Regulatory and *egal Issues to 'e addressed

The following are the regulator# and the legal issues which are acting as hindrances to the development of the mar!et for securitisation. :

a. 3egal Issues! 7
< 'artial Assignment of %ebt under the "ndian (aw. < /ale of future receivables which operates as an e)ecutor# contract and therefore is not covered under the definition of debt under law. < Rights of 7/ecuritised7 asset owners or lenders vis a vis rights of conventional lenders who ta!e a charge on all boo! debts 7present7 and 7future7. These covenants ma!e it difficult to consummate 7/ecuritisation7 transactions. < "ncidence of /tamp dut# on assignment of cash flow and receivables is prohibitive and therefore renders securitisation transactions fiscall# unviable.

*. Ta@at"o Issues! 7
</ection IB transfer of income i.e. is transfer of "ncome without transfer of assets </'; structure is incidence to the %ouble Ta)ation. < Transferabilit# of Fiscal benefits to the /'; of the "nfrastructure 'rojects and "nvestors via. : 8. /ection GB"A @. /ection 8B(@D (g D. /ection GG

%. A%%ou t" g Issues! 7

< For "nfrastructure 1ompan# /ecuritising the Assets the "ncome received in Advance& there are no specific guidelines on Advance "ncome received. O For /'; the income generated will be treated as 'rofit or interest income is also to be issued.

d. Com$a , A%t a d R.I! 7

< The classification of an /'; : ,-F1 than it will re3uire 8. Registration re3uirements @. /(R re3uirements

D. (oan5"nvestment restrictions < Fi)ed v5s Floating charge on the /'; is also to be addressed. "t is anticipated that a change in various regulations and an overall framewor! for securitisation ma# provide impetus to infrastructure financing in the "ndian 1onte)t.

Ma(or Se%ur"t"sat"o 2eals " I d"a Sr. No. 1. -. 1. Issue 2eal 1itiban! Auto loan R/*-:R""10 'F/( "ndia "nfrastructure %evelopers (imited ,A-:A%F1 Stru%tured ., ,A Rat" g Age %, Amou t :Rs. Crs.< 8HH8 8HHE 8HHC First /ecuritisation *)ercise in "ndia. "n the Fashion of /ecuritisation First (isted %eal "nnovative %eal from the house of (JT. "ndia4s First RM-/ T"me Remar#s

1R"/"( 8I @EB

/-" 1A'/ "1RA "1"1"

1R"/"( IB

6.

"1"1"

1R"/"( FBH

8HHH

8.

/-" 1A'/ 1R"/"( GG.G

@BBB

0u ds Re=u"reme ts for 'orts Total 1ost of "nternal Near Additional 1apacit# Resources Available (M0/T IG&8II 8&8G&G8H "nternal Resources Available (*)perts EH&HH8 CE&8FC Additional Resources Available (M0/T D@&EI@ DE&B8H Additional Resources Available (*)perts FB&CDG CG&IGH

1reation 8HHI:B8 8&BB&C@H @BB8:BI 8&ED&GDI

Conclusion
8."n case of $A'( right now the# dont have an# fi)ed contracted revenue in considerable amount but in future the# have a great advantage in doing this t#pes of deals. @./ecuritisation is a ver# fast and a comple) subject in the financial engineering. "t is certainl# a ver# new concept in the emerging mar!et li!e "ndia. D. /ecuritisation will definitel# solve some problems of the "nfrastructure Financing in "ndia. F.Alread# E states in "ndia have ta!en crucial steps in reducing the stamp dut# for the transaction structured on the basis of /ecuritisation. E.6hile certain legal& ta)ation& accounting and other regulator# issues are in the limelight and are needed to be addressed soon. I. 6ith the new instrument becoming familiar to the mar!et and further as the retail investor ta!es interests in securitised products& the cost of the capital will come down over a period of time. C."n an# countr#& more comple) the 1apital mar!et is and greater the depth it has in its %ebt Mar!et& the econom# of that countr# is considered to be Aighl# Matured.

E.'RIVATE INSURANCE SECT)R 0UN2IN4

12*ife $usiness:
"n terms of e)planation in /ection @C A of the Act& the Authorit# has determined that assets relating to 'ension business& Annuit# business and (in!ed (ife "nsurance business shall not form part of the 1ontrolled Fund for the purpose of that section. 6ithout prejudice to /ection @C or /ection @CA of the Act& : *ver# insurer carr#ing on the business of life:insurance shall invest and at all times !eep invested his controlled fund (other than funds relating to pension and general annuit# business and unit lin!ed life insurance business in the following manner. I frastru%ture a d So%"al Se%tor For the purpose of this re3uirement& "nfrastructure and /ocial /ector shall have the meaning as given in regulation @(h %evelopment Authorit# (Registration of of "nsurance Regulator# and "ndian "nsurance 1ompanies

Regulations& @BBB and as defined in the "nsurance Regulator# and %evelopment Authorit# (0bligations of "nsurers to Rural and /ocial /ector Regulations& @BBB respectivel#. The# can invest 8E9 or more in companies which fall under the definition.

32 #eneral $usiness:
6ithout prejudice to /ection @C or /ection @C- of the Act& : *ver# insurer carr#ing on the business of general insurance shall invest and at all times !eep invested his total assets in the manner not less than 8B9 in infrastructure and social sector companies as per section @(h .

As $er regulat"o -:h< of I sura %e Regulator, a d 2e+elo$me t Author"t, :Reg"strat"o of I d"a I sura %e Com$a "es< Regulat"o s? -GGG H" frastru%ture fa%"l"t,H mea s 777 i.A road& highwa#& bridge& airport& port& Railwa#s including -0(T& road transport s#stem& a water suppl# project& irrigation project& industrial par!s& water treatment s#stem& solid waste management s#stem& sanitation and sewerage s#stem= ii.$eneration or distribution or transmission of power= iii.Telecommunication= iv.'roject for housing= v.An# other public facilit# of a similar nature as ma# be notified b# the Authorit# in this behalf in the 0fficial $azette=

%ther Conditions &hat Insurance Company 4as &o Follo05

8.*ver# insurer shall endeavor to maintain a proper balance between the investments made in infrastructure sector and those in the social sector. -onds issued for development of these sectors& dul# guaranteed b# $overnment or otherwise rated not less than PPAA b# independent&

reputed and recognized rating agencies& issued b# others would 3ualif# for compliance of this regulation. @.All investment in assets5 instruments& which are capable of being rated as per mar!et practice& is based on rating of such assets5 instruments. D.The rating should be b# an independent& reputed and recognized "ndian or foreign rating agenc#. F.The assets5 instruments under consideration for investment shall be of a grade not less than QAAR of investment grade as per their current rating. "n case "nvestments of this grade are not available to meet the investment re3uirements of the investing insurance compan# and investment committee of the investing insurance compan# is full# satisfied about the same& then& for the reasons to be recorded in the investment committees minutes& the investment committee ma# approve investment in instruments carr#ing current rating of not less than LA. "nvestments in the LA to be !ept to the minimum. E.The rating of %ebt "nstruments issued b# all "ndia financial institutions recognized as such b# R-" ma# be of PAAA or e3uivalent rating. "n case investment of this grade are not available to meet the re3uirements of the investing insurance compan# and investment committee of the investing insurance compan# is full# satisfied about the same& then& for the reasons to be recorded in the investment committees minutes& the investment committee ma# approve investments in instruments carr#ing current rating of not less than PAA or e3uivalent as rated b# an independent& reputed and recognized "ndian or foreign rating agenc#. I.,o investment shall be made in an asset5 instrument& which is capable of being rated as per mar!et practice but has not been rated. C."nvestments in e3uit# shares listed on a recognized stoc! e)change should be made in activel# traded and li3uid instruments viz.& its trading volume

does not fall below ten thousand units in an# trading session during the last 8@ months or trading value of which e)ceeds Rs. 8B lacs in an# trading session during last 8@ months.R A. <e) t=e .e-tio' ,(=) GAPL i. +(**i'> u'de) t=e )e?ui)ed -(te>o) but (. i'di-(ted i' ot=e) -o'ditio' t=(t -om<(' @i** )e?ui)e -)edit )(ti'> o+ AAAB o) >u()('tee +)om t=e >o0e)'me't ('d GAPL =(. 'ot (-?ui)e -)edit )(ti'> et .o (+te) t=e >et )(ti'> t=e -(' eCe)-i.e. t=i. o<tio'.

F. MEAAANINE 0INANCE
What is /e((anine Finance?
Mezzanine Finance has two fundamental perspectives. First is in terms of capital structure wherein mezzanine financing is used to fill the gap between e3uit# and senior debt. "t is generall# structured as subordinated debt with warrants or some other e3uit# feature or as preferred stoc!. The second definition is in the venture capital parlance& mezzanine financing is a an instrument that bridges gap between the initial rounds of venture financing and a li3uidit# event li!e an "'0& ac3uisition or refinancing. This financing is generall# structured as subordinate debt with warrants having a term of not more than D #ears. /impl# put& mezzanine finance is a cross between a loan and e3uit# in the form of a call option or convertible that allows the investor to convert the loan into an e3uit# investment at a previousl# agreed price. "t is usuall# subordinated to senior debt but ran!s higher than common e3uit#. Some me&&a " e f" a %e " +estors ma, ot " %or$orate a e=u"t, %om$o e t. I stead? the, ma, or a%%e$t a h"gher ste$$ed7u$ " terest rate towards the e d of the loa

" %or$orate some t,$e of formula t"ed to the $erforma %e of the %om$a , :e.g. a $er%e tage of the sales or $rof"t<. The borrower will have to pa# a higher interest rate or coupon rate than senior debt& usuall# at 8B:8@9 p.a.& but suffers less dilutive effect in shareholding compared to pure e3uit# investments.

Moreover& as mezzanine finance is usuall# a subordinated loan& its loan covenants are usuall# less stringent than senior debt. Mezzanine finance has traditionall# been perceived as a bridging loan& but it is increasingl# used as a stand:alone investment in bu#outs or as a substantial investment to further e)pands a business.

&he Indian erspective

Traditionall#& the "ndian ban!ing practice has focused on asset covers. The emphasis on cash flows has been less as ban!ers over the #ears have followed 1hore and Tandon 1ommittee norms. As per the current norms& more borrowing means more asset cover from the borrowers& when the borrower is unable to support further borrowing through assets the# are left gasping for funds. This is especiall# true in case of bu#outs and turnarounds where conventional financers refuse to participate due to restrictive polic# framewor!. Also& lac!luster "'0 mar!et and lac! of private finance in "ndian mar!ets has resulted in a funding void& it is here that mezzanine finance options can be e)ercised to bridge this gap. Realizing the need for corporate funding prior to "'0 and non:asset based borrowings man# overseas funds have setup dedicated mezzanine funds in "ndia based on attractive returns. "t is e)pected that this paradigm will soon catch up in a big wa#. 'rivate e3uit#

pla#ers and multilateral agencies are graduall# occup#ing the areas avoided b# -an!s J F"s. The focus of evaluation would now be more on cash flows and earnings. 1orporate aspiring for ambitious bu#:outs& turnarounds& e)pansion and non:asset based borrowings will have a an alternative available. Although the concept of Mezzanine finance is in the introduction stage& industr# d#namics indicate that the road ahead for mezzanine finance is promising.

Chara%ter"st"%s of Me&&a " e 0" a %e /alient Features S Adds additional tier of financing between e3uit# and debt. S 1ost is higher than +e# benefits S 2seful for startups& infrastructure projects& turnaround cases %rawbac!s S (eads to over leveraging& which ma# not be suitable

bu#outs& ac3uisitions and for some projects S /enior lenders can bloc! pa#ments to mezzanine lenders& if the senior debt is not serviced "nvites provisions on pa#ment stream that cant be changed even b# senior lenders S "n case of default& mezzanine lenders can stop senior lenders from accelerating their installments. while& /enior lender can compel mezzanine lenders to grant waivers. S %ocument intensive

S %oes not re3uire traditional debt& but lesser additional asset cover than e3uit# S *)it route for lenders is S 1laim over the financial pre:defined S assets is senior to e3uit# and trade creditors while S (ender can avail option of junior to secured lender S $enerall# in the form of preference shares& convertible loans& participating loan or combination of it. S 1an avail credit enhancement with e)clusive use of debt service reserve account. capital appreciation thorough e3uit# conversion S /eniors lenders can use mezzanine as buffer against ris! S (enders5;1s can avail higher returns based on their evaluation s!ills and relationship

Ke, %om$ar"so s amo g d"ffere t %lasses of " +estme t

Me&&a " e Nature 'r"+ate E=u"t,

Se "or 2e*t C"gh Y"eld .o d 0" a %e Ve ture Ca$"tal (oan& ran!s (oan& subordinated (oan& subordinated 2suall# common highest in times of to senior debt but to senior loan and e3uit#& however li3uidation ran!s higher than usuall# bonds but ma# be in the form common e3uit# ran!s higher than of convertible bond common e3uit# with a low coupon rate (east stringent 1ommon e3uit#. 0ption to convert

Co +e ts; u derta#" gs E=u"t, %om$o e t

/tringent (ess stringent than (ess stringent than Absent senior debt Absent senior debt 1all option5convertible

bond to convert to common e3uit# into common if it is a convertible Sharehold" g d"lut"+e effe%t Absent e3uit# bond Absent (ess dilutive than More dilutive than private mezzanine finance e3uit#5venture Retur e@$e%ted Mar!et lending rate from " +estors 8@:8F9 p.a. capital 8G:@B9 p.a.& inclusive of 8B: 8@9 p.a. coupon rate& with the remaining return from the e3uit# portion or higher stepped up interest rate5other formula tied to the DB9:DE9 p.a.

performance of the compan#

C%,C*6SI%,
Mezzanine finance is at a introduction stage in "ndia with ver# few publicized deals. " want to suggest mezzanine finance deal which is based on $A'(s future performance we ta!e loan at lower rate but if we earn good profit well give share of that profit to lender but as it is less popular and all legal aspect are still not clear $A'( can consider it after loo!ing at all the legal aspects onl#. The benefits offered b# this novel method of financing promises alternative options to the 1F0s . MJAs& huge e)pansion (big tic!et projects and turnarounds are domains where funds are some time re3uired more than what an enterprise can borrow. (ets see how mezzanine finance has been useful in such cases where firms have failed to obtain conventional finances. "n case of large7s%ale $ro(e%ts& fund re3uirement often e)ceed the estimated cost and procuring fresh loans ma# not be eas#. 0n the other hand& e3uit# route ma# not be preferred since it dilutes promoters holding. "n such cases& mezzanine finance rescues the project. Recentl#& a power utilit# in +erala is reportedl# arranging for mezzanine finance& which would result in an additional tier of finance in the compan#. The structure of the instrument would provide advantages to all the participants viz. sponsors (e3uit# providers & senior lenders and subordinate debt providers. "t is reportedl# considered b# a domestic infrastructure financing compan# .Mezzanine financing is crucial in financing a%=u"s"t"o as it its fle)ible nature allows tailor made funding solution that

contributes significantl# in improving e3uit# returns. 6hen companies lac! free reserves to ma!e a bu#out that has tremendous value creation potential in the form of s#nerg#. "n such case& mezzanine financing could be seen as suitable alternative. 1lassic e)ample for mezzanine financing in "ndia is Tata teas ac3uisition of Tetle# group. Aere& Tata tea could ac3uire a global giant Tetle# with limited Qris! and cash flow pressureR on its balance sheet. This leverage bu#out deal was funded through senior debt as well as mezzanine finance. Aere& an ac3uirer could target large size ac3uisition with a limited ris! and cash flow re3uirement.

A*( AFF AM'R A'( -00T -0T 110* 1% 1F/ 1M"* 10T 1T %-T %01 %'R %6T FRM $*$$/R( $""1 $M$o$ $'1$'"%1( $''( $/'( A'1( "1% ?,'T +( (/A/ Mb'T Mn.1um McR M'T MT' ,A ,"0 '0( RJ% /-M /A TAM' T*2 T'A TR"M/ ;(11

Adani *)port (imited A.F.Ferguson J 1ompan# Adaipur Mundra 'ort Railwa# Adani 'ort (imited -uild& 0wn& 0perare and Transfer -uild& 0wn and Transfer 1hief 1ontrol of *)plosive 1hart %atum 1ontainer Freight /tation 1enter for Monitoring "ndian *conom# 1rude 0il Terminal 1ontainer Terminal %r# -ul! Terminal %e:0iled 1a!e %etailed 'roject Report %ead 6eight Tonnage Fertiliser Raw Material $ujarat *lectricit# -oard $uru $obind /ingh Refineries (imited $ujarat "ndustrial "vestment corporation (imited $ujarat Meritime -oard $overnment of $ujarat $ujarat 'ollution 1ontrol -oard $ujarat 'ort "nfrastructure %evelopment 1ompan# (imited $ujarat 'ipvav 'ort (imited $ujarat /tate 'etronet (imited Aindustan 'etroleum 1orporation (imited "nland 1ontainer %epo ?awaharlal ,ehru 'ort Trust +illo (iters (ow /ulphar Aeav# /toc! Mumbai 'ort Trust Million 1ubic Meters Ministr# of Railwa#s Multi 'urpose Terminal Monthl# Traffic 'lans ,ational Aigh 6a# ,ational "nstitute of 0ceangraph#& $oa 'etrolium& 0i! J (ubricants Receipt J %ispatch /ingle -uo# Mooring /tate Aigh 6a# Traffic Authorit# for Major 'orts Twent# Feet *3uivalent 2nit Tons 'er Aour Tata A"$ Ris! Management /ervices ;err# (arge crude 1arriers

(ist of Abbreviations

1G.CRE2IT RATIN4 'R)CESS

I,&R%D6C&I%,
9hat "s a %red"t rat" gI A credit rating is an independent assessment of the creditworthiness of a bond (note or an# securit# of indebtedness b# a credit rating agenc#. "t measures the probabilit# of the timel# repa#ment of principal and interest of a bond. $enerall#& a higher credit rating would lead to a more favorable effect on the mar!etabilit# of a bond. The credit rating s#mbols (long:term are generall# assigned with 7triple A7 as the highest and 7triple -7 (or -aa as the lowest in investment grade (/ee below for definition of rating grades . An#thing below triple - is commonl# !nown as a 7jun! bond.7

1redit rating is essentiall#& the s#mbolic indicator of the current opinion of the rating agenc# on the relative abilit# and the willingness of the issuer of a financial (debt instrument to met the (debt service obligations as and when the# arise. "t other words& credit rating provides a simple s#stem of gradation b# which the relative capacities of companies (borrowers to ma!e timel# repa#ment of interest and principal on a particular t#pe of debt5financial instrument can be noted. 1redit rating however is neither a general:purpose evaluation of a corporate entit# nor an overall assessment of the credit ris! li!el# to be involved in al the debt5financial instrument and do such issues contract intended to grade. A rating is specific to a debt clash financial instrument and is intended to grade different and specific instruments in terms of credit ris!s associated with particular instruments. Although it is an opinion e)pressed b# an independent professional organization& on the basis of a detailed stud# of all the relevant factors& the rating does not amount to an# recommendation to b#& hold or sale an instruments as it does not ta!e into considerations& which ma# influence an investment decision. As a fee:based financial advisor# service& credit rating is obviousl#& e)tremel# useful to investors& corporate (borrowers & ban!s& and financial institutions. For the investors& it is an indicator e)pressing the underl#ing credit 3ualit# of a (debt issue program. The investor is full# informed about the compan# as an# effect of change in business5economic condition of the compan# is evaluated and published regularl# b# the rating agencies. The corporate borrowers can raise fund at a cheaper rate with a good rating. "t minimizes the role of Pname recognition and lesser:!nown companies can also approach the mar!et on the basis of their rating. The fund ratings are useful to the ban! and other financial institutions when the# decide on lending and investment strategies.

Although credit rating has been a long established part of the financial mechanism abroad& it is of relativel# recent origin in the countr#. The first rating agenc#& 1redit Rating "nformation /ervices of "ndia (td. (1R"/"( & was started in 8HGG. "nitiall# it pla#ed a rather subdued role presumabl# because the institutional investors did not re3uire the wisdom of the rating agenc#. "n a change scenario where corporate are increasingl# dependent on the public& the removal of restriction on interest rate and stipulation of a mandator# credit rating of a number of instruments since 8HH8 b# the government5 /*-"& credit rating has emerged as a critical element in the functioning of the "ndia debt5financial mar!ets. "n response to the ever increasing role of credit rating& two more agencies were set up in 8HHB T"nformation and 1redit Rating /ervices ("1RA (td. And 8HHD 1redit Anal#sis and Research (1AR* (td. Respectivel#. The first private sector credit rating institution was set up as a joint venture between the ?M Financial& Alliance $roup and the "nternational rating agenc# %uffs and 'helps in 8HHE& !nown as 'helps 1redit Rating "ndia (td. (%1R . "n addition to the mandated ratings& these agencies are also diversif#ing into other instruments5sectors. 2nli!e abroad& unsolicited rating is still not done in "ndia. ,evertheless& the increasing recognition to credit rating in the emerging financial services industr# in the countr# mar!s a major transition from a corporate culture where names mattered to one where abstract grading count.

This chapter e)amines the present status of the credit ratings industr#5s#stem in "ndia. /ection 8 of the chapter briefl# profiles the credit ratings agencies& followed b# the rating process in /ection @. The rated instruments and the rating s#mbols are discovered in the following section. The main points are summarized in the last section of the chapter.

RA&I,# R%C-SS A,D /-&4%D%*%#7

The process5procedure followed and the methodologies used generall# b# 1RAs in respect of mandated and other instruments are briefl# outlined in this section. Rating 'rocess5'rocedure All the four rating agencies in the countr# adopt a similar rating process. The steps followed b# them in the rating process are illustrated with reference to 8 new issues5instruments @ review of rating and DBflow chart of rating. Rat" g 'ro%ess of New Issues The following steps are involved in rating the issuers instruments for the first time before going public.

Rating Agreement and Assignment of Anal#tical Team The process of rating starts with the issue of the rating re3uest b# the issuer of the instrument and the signing of the rating agreement. 0n receipt of the re3uest& the credit rating (1RA assigns an anal#tical team& comprising two5more anal#sts& one of whom would be the relevant business area are responsible for carr#ing out the rating assignments. Meet" g w"th Ma ageme t 'rior to meeting with issuer& the anal#tical team obtains and anal#ses information relating to its financial statements& cash flow projections and other relevant information detailed below. 8 Annual reports for the past five #ears and interim reports for the past three #ears. : if annual reports do not include cash flow statements& then cash flow statements should be provided for the above periods. : if the interim reports do not contain balance sheets& these should also be provided. @ Two copies of the latest prospectus offering statements and applications for listing on an# major stoc! e)changes. D 1onsolidated financial statements for the past three fiscal ears b# principal& subsidiar# or division. F Two copies of the statements of projected sources and application of funds& balance:sheets and operating statements for at least ne)t three #ears along with assumptions on which projections have been based. E 1opies of e)isting loan agreements & along with recent compliance letters& if an#. "n the case of outstanding public debt issues& copies of compliance letters re3uired b# indenture of such debt should be furnished. I A certified cop# of the resolution adopted b# the board of the compan# authorizing the issuance of commercial paper and or other short:term debt instruments& including the name of authorized signatories. C (ist of the ban!s& showing lines of credit and contact officers for each& along with dul# completed short:term borrowings from them in the prescribed format. G "f applicable& the name of commercial paper dealer of the compan#& the planned use of proceeds from the sale of commercial paper& the amount of commercial paper to be used& and a specimen cop# of the commercial paper note. H -iographical information on the compan#s principal officers and the names of the board members There is no prescribed format for suppl#ing above information but an# format could be fle)ibl# used to cover all the re3uired information ade3uatel#. A complete brief followed b# a discussion on management philosoph# and plans should also be obtained. There are certain important aspects which should be !nown since these impact the credit 3ualit# of the instrument being rated.

%iscussions with the management might reveal more information as such discussion should cover the following matters. a %iscussion on the management philosoph# and plan should camouflage the financial and operating data for the past five #ears and three to five #ears for future projections. b %iscussion on projections should reveal management objectives and future plans& that is future growth plan of the compan# should be cr#stallized. These projections are supposed to reflect a QmanagementsR best estimates of future financial posture of the compan# and incorporate underl#ing economic assumptions for the future as well as growth objectives& mar!eting strategies& spending plans and financing needs and alternatives. The financial projections pla# a significant role in the rating process as the# indicated a management plan for the future. The# illustrate the financial strategies of the compan# in terms of anticipated reliance on internal cash flow or outside funds. c %iscussion must help reveal the ris!s and opportunities which affect credit 3ualit# over the period covered under projections. 0ther !e# factors that the issuer believes will have an impact on the rating& including business segments anal#sis& portfolio anal#sis and so forth& should also be discussed. The anal#tical team then proceeds to have detailed meetings with the compan#s management. To best serve the interests of the investors& a direct dialogue is maintained with the issuer as this enables the 1RAs to incorporate non:public information in a rating decision and also enables the rating to be forward loo!ing. The topics discussed during the management meeting are wide ranging& including competitive position& strategies& financial policies& historical performance and near and long:term financial and business outloo!. *3ual importance is placed on discussing the issues& business ris! profile and strategies& in addition to reviewing financial data. The rating process ensures complete confidentialit# of the information provided b# the compan#. All information is !ept strictl# confidential b# the rating group and is not used for an# other purpose or b# an# third part# other than the 1RAs. Rat" g Comm"ttee After meeting with the management& the anal#sts present their report to a rating committee which then decides on the rating. The rating committee meeting is onl# aspect of the process in which the issuer does not participate directl#. The rating is arrived at after a composite assessment of all the factors concerning the issuer& with the !e# issues getting greater attention from the rating committee. Commu "%at"o to the Issuer After the committee has assigned the rating& the rating decision is communicated to the issuer& along with the reasons or rationale supporting the rating.

For a rating to have to an issuer or to an investor& the 1RA must have credibilit#. The thoroughness and transparenc# of its rating methodolog# and the integrit# and fairness of its approach are important factors in establishing and maintaining credibilit#. The 1RAs are& therefore alwa#s willing to discuss with the management& the critical anal#tical factors that the committee focused on while determining the rating and also an# factors that the compan# feels ma# not have been considered while assigning the rating. "n the event that the issuer disagrees with the rating outcome& he ma# appeal the decision for which new5 additional information& which is material to the appeal and specificall# addresses the concerns e)pressed in the rating rationale& need to be submitted to the anal#sts. /ubse3uentl#& a note is put up once again before the rating committee where the rating ma# or ma# not undergo a change. The client has the right to reject the rating and the whole e)ercise is !ept confidential. The rating process& from the initial management meeting to the assignment of the rating normall# ta!es three to four wee!s. Aowever& when re3uired& the 1RAs deliver the rating decision in shorter time frames. 2"ssem" at"o to the 'u*l"% 0nce the issuer accepts the rating& the 1RAs disseminate it& alone with the rationale& through print media. Rat" g Re+"ew for 'oss"*le Cha ge "n case of rated instruments& the rated compan# is on the surveillance s#stem of the credit rating agenc# and from time to time& the earlier rating is received. The 1RA constantl# monitors all ratings with reference to new political& economic and financial developments and industr# trends. The 1RA prepares annual review proposals for rating review committee. The following steps are necessar# in the rating process for review cases. New 2ata of Com$a , The anal#sts review the new information or data available on the compan# which might be sent to it b# the compan# or it might have been procured through routine channels as strategic information under its surveillance approach. "f the new information is crucial for rating decisions then anal#sts ta!e action to collect more information as ma# be available from different sources and stud# the same from the angle of relevance and authenticall#. Rat" g Cha ge 0n preliminar# anal#sis of the new data& oif the anal#sts feel that there is a possibilit# for changing the rating& then the anal#sts re3uest the issuer for a meeting with its management and proceed with a comprehensive rating anal#sis. The rest of the procedure of presenting the rating opinion to a rating committee and so on is the same as is followed in the cases of new issues discussed above.

Cred"t Rat" g 9at%h %uring the review monitoring or surveillance e)ercise& rating anal#sts might become aware of imminent events li!e merger and so on& which affect the rating and warrants rating change. "n such a possibilit#& the issuers rating is put on Pcredit watch indicating the direction of a possible change and supporting reasons for a review. 0nce a decision to either change or present the rating has been made& the issue will be removed from Pcredit watch. The duration of credit watch is for HB da#s. "n case the rating is modified& the same procedure of presentation to the rating committee& and so on are followed. P1redit watch indicates four situations for changing the rating& namel# (8 Q,egativeR change indicating the possibilit# of downgrade& (@ Q'ositiveR change indicating an upgrade (D Q/tableR impl#ing no change in rating and (F Q%evelopingR implies and unusual situation in which the future events are so unclear that the rating ma# be changed either in negative or positive directions. 0low Chart of the Rat" g 'ro%ess The steps for the rating process discussed in the foregone paragraphs can be summed up in the flow chart in Figure 8I.8 Rat" g Methodolog, The rating methodolog# involves an anal#sis of the industr# ris!& the issuers business and financial ris!s. A rating is assigned after assessing all the factors that could affect the credit worthiness of the entit#. T#picall#& the industr# ris! sets the stage for anal#zing more specific compan# ris! factors and establishing the priorit# of these factors in the overall evaluation. For instance& if the industr# is highl# competitive& careful assessment of the issuers mar!et position is stressed. "f the compan# has large capital re3uirements& the e)amination of cash flow ade3uac# assumes importance. The ratings are based on current information provided b# the issuer or facts obtained from reliable both 3ualitative and 3uantitative criteria are emplo#ed in evaluating and monitoring the ratings.

For /anufacturing Companies!

The main elements of the rating methodolog# for manufacturing companies are outlined below. .us" ess R"s# A al,s"s! The rating anal#sis begins with an assessment of the compan#s environment focussing on the strength of the industr# prospects& pattern of business c#cle as well as competitive factors affecting the industr#. The vulnerabilit# of the industr# to government controls5regulations is assessed. The nature of competition is different for different industries based on price& product 3ualit#& distribution capabilities& product differentiation& service and so on. The industries characterized b# a stead# growth in demand& abilit# to maintain without impairing future prospects& fle)ibilit# in the timing of capital outla#s and moderate capital intensit# are in a stronger position.

6hen a compan# participates in more than one business& each segment is anal#zed separatel#. A trul# diversified compan# does not have a single business segment that is dominant and the compan#s abilit# to manage diverse operation is significant factor. As part of the industr# anal#sis& !e# rating factors are identified into !e#s to success and areas of vulnerabilit#. The main industr# and business factors assessed include.

I dustr, R"s# ! ,ature and basis of competition& !e# success factors& demand and suppl# position& structure of industr#& c#clical5seasonal factors& government policies and so on. Mar#et 'os"t"o of the Issu" g E t"t, 9"th" the I dustr, ! Mar!et share& competitive advantage& selling and distribution arrangements& product and customer diversit# and so on. )$erat" g Eff"%"e %, of the .orrow" g E t"t, ! (ocational advantages& labor relationship& cost structure& technological advantages and manufacturing efficienc# as compared to competitors and so on. 3egal 'os"t"o ! Terms of the issue document5prospectus& trustees and their responsibilities& s#stem for timel# pa#ment and for protection against fraud5forger# and so on. 6hile the 1RAs do not have a minimum size criterion for an# given rating level& the size of the compan# is a critical factor in the rating decision as smaller companies are more vulnerable to business c#cle swings as compared to larger companies. "n general& small companies are more concentrated in terms of product& number of customers and geograph# and& conse3uentl#& lac! the benefits of diversification that can benefit larger firms. "f the compan# being rated is a subsidiar# or an affiliate& that is controlled b#5has strong lin!s with a dominant parent& then the rating also includes an anal#sis of the parent compan#s credit 3ualit#. The parent compan#s credit 3ualit# could have an impact on the issuers own credit 3ualit#. 0" a %"al R"s# A al,s"s ! After evaluation the issuers competitive position and operating environment& the anal#sis proceed to anal#ze the financial strength of the issuer. Financial ris! is anal#zed largel# through 3uantitative means& particularl# b# using financial ratios. 6hile the past financial performance of the issuer is important& emphasis is placed on the abilit# of the issuer to maintain5improve its future financial performance.

As rating rel# on audited data (the rating process does not entail auditing a compan#s financial records & the anal#sis of the audited financial results begin with a review of accounting 3ualit#. The purpose is to determine whether ratios and statistics derived from financial statements can be used to accuratel# measure a compan#s performance and its position& relative to both its peer group and the larger universe of companies. The profitabilit# of a compan# is an important determinant of its abilit# to withstand business adversit# as well as generate capital internall#. The main measure of profitabilit# studied include operating and net margins and return on capital emplo#ed. The absolute levels of these ratios& trends in movement of the ratios as well as comparison of the ratios with other competitors& is anal#sed. As a rating e)ercise is a forward:loo!ing e)ercise& greater emphasis is laid on the future& rather than the past earning capabilit# of the issuers. *mphasis is also laid on an anal#sis of cash flow pattern& as it provides a better indicator of the issuers debt servicing capabilit# compared to reported earnings. A cash flow anal#sis reveals the usage of cash for different purpose& and& conse3uentl#& the e)tent of cash available for debt service. The future debt claims on the issuers as well as issuers abilit# to raise capital is also assessed in order to arrive at the level of the issuers financial fle)ibilit#. The areas considered in financial anal#sis include . A%%ou t" g Dual"t, ! 0verstatement5understatement of profits& auditors 3ualifications& method of income recognition& inventor# valuation and depreciation policies& off -alance sheet liabilities and so on. Ear " gs 'rote%t"o ! /ources of future earnings growth& profitabilit# ratios& earnings in relation to fi)ed income charges and so on. Ade=ua%, of Cash 0lows ! "n relation to debt and wor!ing capital needs& stabilit# of cash flows& capital spending fle)ibilit#& wor!ing capital management and so on. 0" a %"al 0le@"*"l"t,! Alternative financing plans in times of stress& abilit# to raise funds& asset deplo#ment potential and so on. I terest a d Ta@ Se s"t"+"t,! *)posure to interest rate changes& ta) law changes and hedging against interest rates and so on. Ma ageme t R"s# ! A proper assessment of debt protection levels re3uires an evaluation of the management philosophies and its strategies. The anal#st compares the compan#s business strategies and financial plans (over a period of time to provide insights into a managements abilities with respect to forecasting and implementing of plans. /pecific areas reviewed include . (i Trac!

record of the management . planning and control s#stems& depth of managerial talent& succession plans = (ii *valuation of capacit# to overcome adverse situations = and (iii $oals& philosoph# and strategies. 0" a %"al Ser+"%es Se%tor ! 6hen rating debt instruments of financial institutions& ban!s and non:ban!ing finance companies& in addition to the financial anal#sis and management evaluation outlined above& the assessment also la#s emphasis on the following factors. Regulator, a d Com$et"t"+e E +"ro me t ! (i /tructure and regulator# framewor! of the financial s#stem = (ii Trends in regulation5deregulation and their impact on the compan#5institution. 0u dame tal A al,s"s to include Capital Ade.uacy ! Assessment of the true networth of the issuer& its ade3uac# in relation to the volume of business and the ris! profile of the assets. Resource ! 0verview of funding sources= funding profile= cost and tenor of various sources of funds. Asset 8uality ! >ualit# of the issuers credit ris! management= s#stems for monitoring credit= sector ris!= e)posure to individual borrowers= management of problem credits and so on. rofita'ility and Financial osition ! Aistoric profits= spreads on funds deplo#ment= revenues on non:fund based services= accretion to reserves and so on. Interest and &a+ Sensitivity ! *)posure to interest rate changes= ta) law changes and hedging against interest rate. The summar# of information to be submitted b# manufacturing and financial companies for rating assignment is given in Appendi) 8I:- and 8I:1 respectivel#.

Credit Rating Agencies

Cred"t A al,s"s J Resear%h :CARE<

Eth Floor& Mahindra Towers& %r $. M. -hosale Marg& 6orli& Mumbai : FBB B8G& Tel . FH@E@F@5FF& FHD@EGG5EI@C& FHCEECF5CE Fa) . FHCD@FD Cred"t Rat" g I format"o Ser+"%es of I d"a 3"m"ted :CRISI3< 1risil Aouse ('innacle 1hambers & 8@858@@& Andheri +urla Road Andheri (*ast & Mumbai : FBB BHD Tel . IH8DBB8:H Fa). IH8DBBB 0"t%h Rat" gs I d"a '+t. 3td. @:- (a!e Temple Road& 8st Floor +ol!ata CBBB@H Tel . FIE ED@I& FIE ED@C Fa). FIE ED@C I +estme t I format"o J Cred"t Rat" g Age %, of I d"a 3"m"ted :ICRA< +ailash -uilding& Fth Floor @I& +asturba $andhi Marg ,ew %elhi : 88BBB8 Tel . DDE CHFB:EB Fa) . DDE CB8F& DDE E@HD

11.C)NC3USI)N

'roper infrastructural development is a prere3uisite for stead# and health# economic growth of the countr#. The availabilit# of ade3uate infrastructure facilities is imperative for the overall economic development of the countr#. "nfrastructure ade3uac# helps determine success in diversif#ing production& e)panding trade& coping with population growth& reducing povert# and improving environmental conditions. "ndian port sector has come a long wa# since last decade or two but still there is a long wa# to go as the countr# becomes more globalised and integrated with the global economies. The authorities have understood the importance of ports as a lifeline form an econom#. Man# steps have been ta!en to develop the sector but still the# are not enough for the port sector to groom properl#. The biggest problem with the port sector seems to be the availabilit# of funds for finance. After liberalization process the companies are offered with man# t#pe of different instruments for funding the projects. %ifferent benefits li!e ta) holida#s and subsidies are given to encourage investments in the ports. "t has become easier for port companies to procure funds as interest rates have come down considerabl# in last decade or so. The option of procuring funds from foreign mar!et is also made accessible for the companies. There are man# debt restructuring plans available for the compan# as mentioned above. "t is upon the higher authorities at the $A'( to decide the tool the# will use in future to substitute high interest loans. *ver# instrument has its own pros and cons but we have to properl# decide which will be the most beneficial for the compan# in the long term b# comparing the instrument with the objective& goals and wor!ing of the organization. -orrowing should be made in long term instrument as the brea! even period in ports is longer. "nstruments should be such that the# give stabilit# as well as fle)ibilit# to the organizations decision ma!ing. 1redit rating as a source for eas# procurement for funds is ver# important. $ood rating b# a well recognized institution reduces amount of effort needed in order to procure funds from the mar!et. Thus it is ver# important for to have good repo with credit rating agencies in order to have a smooth fund procuring process if needed b# the compan#. $A'( is ver# d#namic organization which believes in constantl# loo!ing for opportunities and chances to enhance their business. The# constantl# loo! for options to improve their profitabilit# and become more and more competitive. M# e)perience with $A'( as a trainee will be ver# useful for me in m# future when " join a compan# as d#namic and efficient as $A'(.

1-. .I.3I)4RA'CY

www.tradeport.org www.adanigroup.com& http.55www.investorwords.com http.55www.debtonnet.com D$)o-=u)e. o+ HDFC mutu(* +u'd& #ot(E Mutu(* +u'd& F)('E*i' Tem<*eto' I'di(F Mehta& Aman.(+ota! securities Qcurrent bond issues and cost of bond issuesR interviewed b# 'ra!ash ,otani& @E Februar#& @BBD. 1handra& 'rassana. Financial Management. ,*6 %*(A". Tata Mc$raw: Aill.@BB8. pp. DFC:FBC. http.55www.e)pressindia.com http.55www.brescon.com http.55www.careratings.com5 http.55www.icraindia.com5