PROJECT FINANCING AND MANAGEMENT

Module I
Project finance, capital structure

Module II
Risk management and the relationship between investment and financing

Module III
Project appraisal Procedures

Module IV
Planning and implementation of projects

Module V
Venture capital finance and reconstruction of assets in distress

Module I
Project finance


The term project finance is used loosely by academics, bankers and journalists tom describe a range of
financing arrangements. Often bandied about in trade journals and industry conferences as a new
financing technique, project finance is actually a centuries-old financing method that predates corporate
finance. However with the explosive growth in privately financed infrastructure projects in the developing
world, the technique is enjoying renewed attention.

Project financing techniques date back to at least 1299 A.D. when the English Crown financed the
exploration and the development of the Devon silver mines by repaying the Florentine merchant bank,
Frescobaldi, with output from the mines.1 The Italian bankers held a one-year lease and mining
concession, i.e., they were entitled to as much silver as they could mine during the year. In this example,
the chief characteristic of the project financing is the use of the projects output or assets to secure
financing.

The following provides a preliminary list of common features of project finance transactions.
1. Capital-intensive: Project financings tend to be large-scale projects that require a great deal of
debt and equity capital, from hundreds of millions to billions of dollars.
Infrastructure projects tend to fill this category. A World Bank study in late 1993 found that the
average size of project financed infrastructure projects in developing countries was $440 million.
However, projects that was in the planning stages at that time had an average size $710 million.
2. Highly leveraged: These transactions tend to be highly leveraged with debt accounting usually
for 65% to 80% of capital in relatively normal cases.
3. Long term: The tenor for project financings can easily reach 15 to 20 years.
4. Independent entity with a finite life: Similar to the ancient voyage-to-voyage financings,
contemporary project financings frequently rely on a newly established legal entity, known as the
project company, which has the sole purpose of executing the project and which has a finite life
so it cannot outlive its original purpose. In many cases the clearly defined conclusion of the
project is the transfer of the project assets.
5. Non-recourse or limited recourse financing: The project company is the borrower. Since these
newly formed entities do not have their own credit or operating histories, it is necessary for
lenders to focus on the specific projects cash flows. That is, the financing is not primarily
dependent on the credit support of the sponsors or the value of the physical assets involved.
Thus, it takes an entirely different credit evaluation or investment decision process to determine
the potential risks and rewards of a project financing as opposed to a corporate financing. In the
former, lenders place a substantial degree of reliance on the performance of the project itself. As
a result, they will concern themselves closely with the feasibility of the project and its sensitivity
to the impact of potentially adverse factors. Lenders must work with engineers to determine the
technical and economic feasibility of the project. From the project sponsors perspective, the
advantage of project finance is that it represents a source of off-balance sheet financing.
6. Controlled dividend policy. To support a borrower without a credit history in a highly-leveraged
project with significant debt service obligations, lenders demand receiving cash flows from the
project as they are generated. This aspect of project finance recalls the Devon silver mine
example, where the merchant bank had complete access to the mines output for one year. In
more modern major corporate finance parlance, the project has a strictly controlled dividend
policy, though there are exceptions because the dividends are subordinated to the loan payments.
The projects income goes to servicing the debt, covering operating expenses and generating a
return on the investors equity. This arrangement is usually contractually binding. Thus, the
reinvestment decision is removed from managements hands.
7. Many participants. These transactions frequently demand the participation of numerous
international participants. It is not rare to find over ten parties playing major roles in
implementing the project. The different roles played by participants are described in the section
below.
8. Allocated risk. Because many risks are present in such transactions, often the crucial element
required to make the project go forward is the proper allocation of risk. This allocation is
achieved and codified in the contractual arrangements between the project company and the other
participants. The goal of this process is to match risks and corresponding returns to the parties
most capable of successfully managing them. For example, fixed-price, turnkey contracts for
construction which typically include severe penalties for delays put the construction risk on the
contractor instead on the project company or lenders. The risks inherent to a typical project
financing and their mitigates are discussed in more detail below.
9. Costly. Raising capital through project finance is generally more costly than through typical
corporate finance avenues. The greater need for information, monitoring and contractual
agreements increases the transaction costs. Furthermore, the highly-specific nature of the
financial structures also entails higher costs and can reduce the liquidity of the projects debt.
Margins for project financings also often include premiums for country and political risks since
so many of the projects are in relatively high risk countries. Or the cost of political risk insurance
is factored into overall costs.












Capital structure


Borrowing funds or raising equity in the local capital market is often a good way to reduce political risk.
Any event that harms the profitability of the project will affect local lenders and investors. This prospect
tends to furnish a disincentive for the local government to take adverse actions. The stre"n ~hof the
disincentive de~endosn how much local investors and lenders have at stake in the project.
The capital markets in the developed countries are good potential sources of funding. The capital markets
in the emerging countries are less desirable. Funds availability is limited and maturities are short. As of
year-end 1995, Brazil, Ecuador, India, Indonesia, Malaysia, Mexico, South Korea, Thailand, and Trinidad
and Tobago all had viable corporate debt markets. But in Brazil, the market consisted mainly of leasing
company bonds maturing within 18 months from the date of issue. In Mexico, the longest maturity
available for corporate debt was 7 years, but only about half had an original maturity exceeding 1 year.
South Korea had the deevest corDorate debt market of the countries1 mentioned above, but original debt
maturities could not exceed 5 years.
A notable exception to the short-maturity limitation was Trinidad and Tobago. Maturities of up to 25
years and 15 years were possible in the government bond market and the corporate bond market,
respectively.
As the economies within the emerging markets develop, so will the local capital markets. Where such
markets exist, project sponsors should carefully consider raising at least a portion of the funds they need
in those markets.


It is important to keep in mind that the world capital markets have become more closely integrated over
the past two decades. Also, the Euromarkets represent a truly international capital market. At different
times, different capital markets may provide funds on the most attractive terms. Also, new financial
instruments, such as interest rate swaps and currency swaps, increase the array of financing alternatives
available to a project.
A project can borrow in one capital market, use these instruments to transform the characteristics of the
loan, and possibly achieve a lower all-in cost of funds than the project could obtain from one of the
traditional sources of project-type loans.
These new instruments offer opportunities to recharacterise a debt obligation's interest rate or currency
characteristics. Consequently, they have expanded the menu of financing alternatives available to a
project.
Multilateral agencies, such as the World Bank and IDB, and various government agencies, such as Exim
bank and OPIC, have stepped up their funding of private infrastructure projects. Local capital markets are
a useful source of funds in many emerging markets. Raising funds locally can reduce a project's political
risk exposure. Project financial engineering requires examining all likely possible sources of debt and
equity-not just the traditional ones-to determine which markets can provide the needed funds on
acceptable terms at the lowest possible cost.

Module II
Risk management
ASSESSING PROJECT RISKS
As a rule, lenders will not agree to provide funds to a project unless they are convinced tbat it
will be a viable going concern. A project cannot have an established credit record prior to
completion-in fact, it cannot have such a record prior to having operated successfully for a long
enough period to establish its viability beyond any reasonable doubt. Consequently, lenders to a
project will require that they be protected against certain basic risks. Lending to a project prior to
the start-up of construction, without protection against the various business and financial risks,
would expose project lenders to equity risks. But lenders, who are often fiduciaries, find it
imprudent to assume technological, commercial, or other business risks. Therefore, they require
assurances that creditworthy parties are committed to provide sufficient credit support to the
project to compensate fully for these contingencies.
In light of the business and financial risks associated with a project, lenders will require security
arrangements designed to transfer these risks to financially capable parties and to protect
prospective lenders. The various risks are characterized here as: completion, technological, raw
material supply, economic, financial, currency, political, environmental, and force majeure risks.
Each is discussed in the sections that follow.
COMPLETION RISK
Completion risk entails the risk that the project might not be completed. Lenders to projects are
particularly sensitive to becoming creditors of a "dead horse." They will therefore insist on being
taken out of their investment if completion fails to occur.
Completion risk has a monetary aspect and a technical aspect. The monetary element of
completion risk concerns the risk either (1) that a higher-than-anticipated rate of inflation,
shortages of critical supplies, unexpected delays that slow down construction schedules, or
merely an underestimation of construction costs might cause such an increase in the capital
expenditures required to get the project operational that the project would no longer be
profitable; or (2) that a lower-than expected price for the project's output or a higher-than-
expected cost for a critical input might reduce the expected rate of return to such an extent that
the sponsors no longer find the project profitable. For a major project, a cost overrun of even 25
percent, which in recent years would have been considered a modest overrun for a large
construction project, may well equal or exceed the sponsors' total equity contribution.

The other element of completion risk relates to the technical processes incorporated in the
project. In spite of all the expert assurances provided to the lenders prior to the financing, the
project may prove to be technically infeasible or environmentally objectionable. Alternatively, it
may require such large expenditures, in order to become technically feasible, that the project
becomes uneconomic to complete.

TECHNOLOGICAL RISK
Technological risk exists when the technology, on the scale proposed for the project, will not
perform according to specifications or will become prematurely obsolete. If the technological
deficiency causes the project to fail its completion test, the risk element properly belongs in the
category of completion risk. However, the project may meet its completion requirement but
nevertheless not perform to its technical specifications. Such failures impair equity returns.
The risk of technical obsolescence following completion becomes particularly important when a
project involves a state-of-the art technology in an industry whose technology is rapidly
evolving.
Normally, such technical risks would preclude project financing. However, lenders might be
willing to fund the project in spite of these risks, if creditworthy parties (such as output
purchasers) are willing to protect lenders from these risks.
RAW MATERIAL SUPPLY RlSK
Particularly in connection with natural resource projects, there is a risk that the natural resources,
raw materials, or other factors of production necessary for successful operation may become
depleted or unavailable during the life of the project. As a general rule of thumb, minable
reserves should he expected to last at least twice as long as the reserves that will be mined during
the project loan servicing period. Prospective lenders to a project will almost always require an
independent reserve study to establish the adequacy of mineral reserves for a natural resource
project.
ECONOMIC RlSK
Even when the project is technologically sound and is completed and operating satisfactorily (at
or near capacity), there is a risk that demand for the project's products or services will not be
sufficient to generate the revenue needed to cover the project's operating costs and debt service
and provide a fair rate of return to equity investors. Such a development might result, for
example, from a decline in the price of the project's output or from an increase in the cost of an
important raw material.
Depending on the economics of a particular project, there might be very little margin for a price
change to occur before any return to equity is eliminated and the project's ability to service its
debt becomes impaired. Project lenders are often willing to permit a mine to close down-and
defer repayment of principal-if cash revenue from the mine falls short of the cash operating cost.
Repayments resume when the mine becomes capable of generating positive net cash flow.
An important element of economic risk is the efficiency with which the project's facilities will be
operated. Lenders will insist that the project sponsors arrange for a competent operator/manager.
A project has no inherent creditworthiness before operations commence. Lenders have no past
operating history that they can study to evaluate the project's economic risks. They will therefore
require undertakings from creditworthy parties sufficient to ensure that project debt service
requirements will be met


CURRENCY RISK
Currency risk arises when the project's revenue stream or its cost stream is denominated in more
than one currency, or when the two streams are denominated in different currencies. In such
cases, a change in the exchange rate(s) between the currencies involved will affect the
availability of cash flow to service project debt. For example, if the project's revenues are
denominated in U.S. dollars and its costs must be paid in a currency other than U.S. dollars, there
is foreign currency risk exposure.
If the U.S. dollar depreciates relative to the other currency without any changes in dollar price
per unit of output, and if project debt is denominated in the same non dollar currency as the
project's operating costs, the depreciation in value will increase the risk that the project will not
be able to service its debt in a timely manner. This risk can be managed by (1) borrowing an
appropriate portion of project debt funds in U.S. dollars, (2) hedging using currency forwards or
futures, or (3) arranging one or more currency swaps
POLITICAL RlSK
Political risk involves the possibility that political authorities in the host political jurisdiction
might interfere with the timely development and/or long-term economic viability of the project.
For example, they might impose burdensome taxes or onerous legal restrictions once the project
commences operation. In the extreme case, there is a risk of expropriation.
Political risk can be ameliorated by borrowing funds for the project from local banks (which
would suffer financially if the project is unable to repay project debt because its assets were
expropriated).
It can also be lessen by borrowing funds for the project from the World Bank, the Inter-
American Development Bank, or some other multilateral financing agency; if the host country is
relying on such agencies to fund public expenditures (expropriation would jeopardize such
funding). In addition, project sponsors can often arrange political risk insurance to cover a wide
range of political risks (see Chapter 9).
Often, the project-sponsors must devote considerable time and effort to obtaining the appropriate
legislative and regulatory approvals to allow a project to proceed. The existence of such hurdles
can have a significant impact on the sponsors' decision on where to build the project.
Making the appropriate arrangements with the host country government can reduce substantially,
or even eliminate, this element of political risk.
ENVIRONMENTAL RlSK
Environmental risk is present when the environmental effects of a project might cause a delay in
the project's development or necessitate a costly redesign. For example, in connection with a
mining project, disposal of tailings is often a very sensitive environmental issue that can add
significantly to the cost of operations. Interestingly, the frequent changes in environmental
regulations in the United States (at both the state and federal levels), and, often, the aggressive
lobbying activities and legal challenges mounted by environmental groups, have given rise to
significant environmental risks for environmentally sensitive projects in the United States. To the
extent environmental objections are voiced through the political process, they give rise to
political risk.
FORCE MAJEURE RlSK
This category concerns the risk that some discrete event might impair, or prevent altogether, the
operation of the project for a prolonged period of time after the project has been completed and
placed in operation. Such an event might be specific to the project, such as a disastrous technical
failure, a strike, or a fire. Alternatively, it might be an externally imposed interruption, such as an
earthquake that damages the project's facilities or an insurrection that hampers the project's
operation.
Lenders normally insist on being protected from loss caused by force majeure." Certain events of
force majeure, such as fires or earthquakes, can be insured against. Lenders will require
assurances from financially capable parties that the project's debt service requirements will be
met in the event force majeure occurs. If force majeure results in abandonment of the project,
lenders typically require repayment of project debt on an accelerated basis. In the case of events
covered by insurance, lenders will require the project sponsors to pledge the right to receive
insurance payments as part of the security for project loans.
Project sponsors will have to rebuild or repair the project--or else repay project debt-out of the
insurance proceeds, if one of these insured events occurs.
Most of the aforementioned risks represent business risks (as opposed to credit risks). Business
risks are not normally accepted knowingly by lenders. However, by means of guarantees,
contractual arrangements, and other supplemental credit support arrangements, the project's
business risks can be allocated among the various parties involved in the project (i.e., project
owners, purchasers of the project's output, suppliers of raw materials, governmental agencies),
thus providing the indirect credit support the project needs to attract financing.



The relationship between investment and financing
_ financing Decision: This function is mainly concerned with determination of optimum capital structure
of the company keeping in mind cost, control and risk. It is also known as Procurement of Fund.

_ Investment Decision: It is also known as Effective Utilization of Fund. In this respect finance
department has to identify the investment opportunities and to choice the best one , after a proper
evaluation.

Introduction:
Risk is inevitable in a business organization when undertaking projects. However, the project manager
needs to ensure that risks are kept to a minimal. Risks can be mainly between two types; negative impact
risk and positive impact risk.
Not all the time would project managers be facing negative impact risks as there are positive impact risks
too. Once the risk has been identified, project managers need to come up with a mitigation plan or any
other solution to counter attack the risk.
Project Risk Management
Managers can plan their strategy based on four steps of risk management which prevails in an
organization. Following are the steps to manage risks effectively in an organization.
Risk Identification
Risk Quantification
Risk Response
Risk Monitoring and Control
Let's go through each of the step in project risk management:
Risk Identification:
Managers face many difficulties when it comes to identifying and naming the risks that occur when
undertaking projects. These risks could be resolved through structured or unstructured brainstorming or
strategies. It's important to understand that risks pertaining to the project can only be handled by the
project manager and other stakeholders of the project.
Risks, such as operational or business risks will be handled by the relevant teams. The risks that often
impact a project are supplier risk, resource risk, and budget risk. Supplier risk would refer to risks that can
occur in case the supplier is not meeting the timeline to supply the resources required.
Resource risk occurs when the human resource used in the project is not enough or not skilled enough.
Budget risk would refer to risks that can occur if the costs are more than what was budgeted.
Risk Quantification:
Risks can be evaluated based on quantity. Project managers need to analyze the likely chances of a risk
occurring with the help of a matrix.

Using the matrix, the project manager can categorize the risk into four categories as Low, Medium, High,
and Critical. The probability of occurrence and the impact on the project are the two parameters used for
placing the risk in the matrix categories. As an example, if a risk occurrence is low (probability = 2) and it
has the highest impact (impact = 4), the risk can be categorized as 'High'.
Risk Response
When it comes to risk management, it depends on the project manager to choose strategies that will
reduce the risk to minimal. Project managers can choose between the four risk response strategies which
are outlined below.
Risks can be avoided
Pass on the risk
Take corrective measures to reduce the impact of risks
Acknowledge the risk
Risk Monitoring and Control:
Risks can be monitored on a continuous basis to check if any change is made. New risks can be identified
through the constant monitoring and assessing mechanisms.
Risk Management Process:
Following are the considerations when it comes to risk management process.
Each person involved in the process of planning needs to identify and understand the risks pertaining to
the project.
Once the team members have given their list of risks, the risks should be consolidated to a single list in
order to remove the duplications.
Assessing the probability and impact of the risks involved with a help of a matrix.
Split the team into subgroups where each group will identify the triggers that lead to project risks.
The teams need to come up with a contingency plan whereby to strategically eliminate the risks involved
or identified.
Plan the risk management process. Each person involved in the project is assigned a risk in which he/she
looks out for any triggers and then finds a suitable solution for it.
Risk Register
Often project managers will compile a document which outlines the risk involved and the strategies in
place. This document is vital as it provides a huge deal of information.
Risk register will often consist of diagrams to aid the reader as to the types of risks that are dealt by the
organization and the course of action taken. The risk register should be freely accessible for all the
members of the project team.
Project Risk; an Opportunity or a Threat?
As mentioned above risks contain two sides. It can be either viewed as a negative element or a positive
element. Negative risks can be detrimental factors that can haphazard situations for a project.
Therefore, these should be curbed once identified. On the other hand, positive risks can bring about
acknowledgements from both the customer and the management. All the risks need to be addressed by the
project manager.
Conclusion
An organization will not be able to fully eliminate or eradicate risks. Every project engagement will have
its own set of risks to be dealt with. A certain degree of risk will be involved when undertaking a project.
The risk management process should not be compromised at any point, if ignored can lead to detrimental
effects. The entire management team of the organization should be aware of the project risk management
methodologies and techniques.



Module III
Project appraisal Procedures

The Role of Project Appraisal
To stop bad projects
To prevent good projects from being destroyed
To determine if components of projects are consistent
To assess the sources and magnitudes of risks
To determine how to reduce risks and efficiently share risks
Introduction
Project appraisal is the process of assessing and questioning proposals before resources are committed. It
is an essential tool for effective action in community renewal. Its a means by which partnerships can
choose the best projects to help them achieve what they want for their community.
But appraisal has been a source of confusion and difficulty for projects in the past. Audits of the
operation of Single Project Budget schemes have highlighted concerns about the design and operation of
project appraisal systems, including:
Mechanistic, inflexible systems
A lack of independence and objectivity
A lack of clear definition of the stages of appraisal and of responsibility for these stages
A lack of documentary evidence after carrying out the appraisal
Its no surprise that audits or inspections arent impressed with the quality of appraisals, and are
specifically found with problems like;
Individual appraisals which do not cover the necessary information or provide only a superficial
analysis of the project
Particular problems in dealing with risks, options and value for money
Appraisals which are considered too onerous/burdensome for smaller projects
Rushed appraisals
Project appraisal is a requirement before funding of programs is done. But tackling problems like those
outlined above is about more than getting the systems right on paper. Experience in projects emphasizes
the importance of developing an appraisal culture which involves developing the right system for local
circumstances and ensuring that everyone involved recognizes the value of project appraisal and has the
knowledge and skills necessary to play their part in it.


What can Project Appraisal Deliver?
Project appraisal helps project initiators and designers to;
Be consistent and objective in choosing projects
Make sure their program benefits all sections of the community, including those from ethnic groups
who have been left out in the past
Provide documentation to meet financial and audit requirements and to explain decisions to local
people.

Appraisal justifies spending money on a project.
Appraisal asks fundamental questions about whether funding is required and whether a project offers
good value for money. It can give confidence that public money is being put to good use, and help
identify other funding to support a project. Getting it right may help a community make its resources go
further in meeting local need

Appraisal is an important decision making tool.
Appraisal involves the comprehensive analysis of a wide range of data, judgments and assumptions, all of
which need adequate evidence. This helps ensure that projects selected for funding:
Will help a partnership achieve its objectives for its area are deliverable
Involve local people and take proper account of the needs of people from ethnic minorities and other
minority groups are sustainable
Have sensible ways of managing risk.

Appraisal lays the foundations for delivery.
Appraisal helps ensure that projects will be properly managed, by ensuring appropriate financial and
monitoring systems are in place, that there are contingency plans to deal with risks and setting milestones
against which progress can be judged.
Getting the system right
The process of project development, appraisal and delivery is complex and partnerships need systems,
which suit local circumstances and organization. Good appraisal systems should ensure that:
Project application, appraisal and approval functions are separate
All the necessary information is gathered for appraisal, often as part of project development in which
projects will need support
Race/tribal equality and other equality issues are given proper consideration
Those involved in appraisal have appropriate information and training and make appropriate use of
technical and other expertise
There are realistic allowances for time involved in project development and appraisal
Decisions are within a implementers powers
There are appropriate arrangements for very small projects
There are appropriate arrangements for dealing with novel, contentious or particularly risky projects.
Appraising a project
Key issues in appraising projects include the following.
Need, targeting and objectives
The starting point for appraisal: applicants should provide a detailed description of the project, identifying
the local need it aims to meet. Appraisal helps show if the project is the right response, and highlight
what the project is supposed to do and for whom.

Context and connections
Appraisal should help show that a project is consistent with the objectives of the relevant funding
program and with the aims of the local partnership. Are there links between the project and other local
programs and projects does it add something, or compete?
Consultation
Local consultation may help determine priorities and secure community consent and ownership. More
targeted consultation, with potential project users, may help ensure that project plans are viable. A key
question in appraisal will be whether there has been appropriate consultation and how it has shaped the
project
Options
Options analysis is concerned with establishing whether there are different ways of achieving objectives.
This is a particularly complex part of project appraisal, and one where guidance varies. It is vital though
to review different ways of meeting local need and key objectives.
Inputs
Its important to ensure that all the necessary people and resources are in place to deliver the project. This
may mean thinking about funding from various sources and other inputs, such as volunteer help or
premises. Appraisal should include the examination of appropriately detailed budgets.
Outputs and outcomes
Detailed consideration must be given in appraisal to what a project does and achieves: its outputs and
more importantly its longer-term outcomes. Benefits to neighborhoods and their residents are reflected in
the improved quality of life outcomes (jobs, better housing, safety, health and so on), and appraisals
consider if these are realistic. But projects also produce outputs, and we need a more realistic view of
output forecasts than in the past.
Value for money
This is one of the key criteria against which projects are appraised. A major concern for government, it is
also important for local partnerships and it may be necessary to take local factors, which may affect costs,
into account.
Implementation
Appraisal will need to scrutinize the practical plans for delivering the project, asking whether staffing will
be adequate, the timetable for the work is a realistic one and if the organization delivering the project
seems capable of doing so.
Risk and uncertainty
You cant avoid risk but you need to make sure you identify risk (is there a risk and if so what is it?),
estimate the scale of risk (if there is a risk, is it a big one?) and evaluate the risk (how much does the risk
matter to the project.) There should also be contingency plans in place to minimize the risk of project
failure or of a major gap between whats promised and whats delivered.

Forward strategies
The appraisal of forward strategies can be particularly difficult, given inevitable uncertainties about how
projects will develop. But is never too soon to start thinking about whether a project should have a fixed
life span or, if it is to continue beyond a period of regeneration funding, what support it will need to do
so. This is often thought about in terms of other funding but, with an increasing emphasis on mainstream
services in neighborhood renewal, appraisal should also consider mainstream links and implications from
the first.
Sustainability
In regeneration, sustainability has often been talked about simply in terms of whether a project can be
sustained once regeneration funding stops but sustainability has a wider meaning and, under this heading,
appraisal should include an assessment of a projects environmental, social and economic impact, its
positive and negative effects.
While appraisal will focus detailed attention on each of these areas, none of them can be considered in
isolation. Some of them must be clearly linked for example, a realistic assessment of outputs may be
essential to a calculation of value for money. No project will score highly against all these tests and
considerations. The final judgment must depend on a balanced consideration of all these important
factors.


OR

Stages in Project Appraisal and Approval
Why should a project evaluation be done in stages?
A. Idea and Project Definition
B. Pre-Feasibility Study
C. Feasibility and Financing
D. Detailed Design
E. Project Implementation
F. Ex-Post Evaluation
A. Idea and Project Definition
Sources of Ideas for Investments
Key questions
a. Where is the demand?
b. Is this project consistent with the organizations expertise, current plans and strategy for the
future?
Project Definition
Project definition is defined broadly to include the scope and specification of the objectives
of the project, its output, its different stakeholders, its economic and social benefits, and the
data requirements.
Most of the projects data requirements are identified in the pre-feasibility and feasibility
stages of the project where the projects variables and parameters are analyzed in detail.
The data are generally arranged in what we refer to as building blocks because they
constitute the foundation for the different types of analyses.

B. Pre-Feasibility Study
Examines overall potential of project
Should maintain same quality of information across all variables
Wherever possible should use secondary information
Biased information better than mean values
Key questions:
a. Is this project financially and economically feasible throughout the projects life?
b. What are the key variables?
c. What are the sources of risk?
d. How can the risk be reduced?

C. Modules of Pre-Feasibility and Feasibility Study

Building Blocks
Demand (including environmental factors) Module
o Study of sources of demand, nature of market, prices and quantities
o Major distinction between domestic versus internationally traded goods and services
o For internationally traded goods, prices are given to the project by world markets
Secondary information most important
o For domestic market, primary research more important
financial and economic values are often affected by project
Technical (including environmental factors) Module
A study of input requirements for investment and operations and their costs
o In this module, secondary information can be used very effectively
o Need to avoid conflict of interest between supplier of technical information and seller of
investment equipment, or contractor for construction
Environmental Assessment Module
o Environmental Assessment augments information for the Economic Analysis
o Identification of Environmental Impacts and Risks
o Where possible, Quantify the Environmental Impacts
Human Resources and Administrative Support Module
o What are managerial and labour needs of the project?
o Does organization have the ability to get the managerial skills needed?
o Is timing of project consistent with quantity and quality of management?
o What are wage rates for labor skills required?
o Manpower requirements by category are reconciled with availabilities and project timing
Institutional Module
o This module deals with the adequacy of the institution responsible for managing the different
stages or phases of the project.
o Insufficient attention to the institutional aspects creates serious problems during the
implementation and operations phases of the project.
Analysis Modules
Financial/Budget Module
o Integration of financial and technical variables from demand module, technical module, and
management module this is not a mechanical exercise
o Construct cash flow (resource flow) profile of project
o Identify key variables for doing economic and social analysis
Economic Module
o Examines the project using the whole country as the accounting entity
o Evaluation of externalities including environmental
Social Appraisal or Distributive and Basic Needs Analysis
o Identification and quantification of extra-economic impacts of project
o Distributive Appraisal
o Income, Cost, and Fiscal Impacts on various stakeholders
o Poverty Alleviation and Political Necessities
o Basic Needs: Evaluate the impact of project on achieving basic needs objectives.
Basic needs will vary from country to country
D. Integrated projects
o Integrated projects can get very complex and need to be approached cautiously to avoid costly
errors.
o It is possible for the bundled project to be financially and economically viable even though some
of the components are not.
o Dropping the components that generate negative returns will maximize the projects benefits.
o Defining and understanding the objectives of the project is particularly important when analyzing
integrated projects.
o Ultimately, the bundle that succeeds the most in accomplishing the desired objectives should be
undertaken.
o If the objective of the project is to maximize the wealth of people in Country, then the component
or bundle that yields the highest economic NPV should be undertaken.


Module IV
Planning and implementation of projects
Techniques of Project Planning and Implementation: Ten Steps to Success

"Techniques of Project Planning and Implementation: ten Steps to Success" provides students and
practitioners with the concepts and tools necessary for effective project planning in ten steps: 1)
identifying projects, programs and policies; 2) proposal writing; 3) implementation process; 4) budgeting;
5) administrative organization; 6) workplan creation; 7) logical framework analysis; 8) monitoring and
evaluation; 9) impact assessment; and 10) report writing


Module V
Venture capital finance and reconstruction of assets in distress

Asset Reconstruction
In todays market scenario, committed focus on core business strengths is critical to the long term
survival of a company. Banks and Financial Institutions would also like to release their valuable capital
resources from non-performing assets (NPAs). Asset reconstruction services are helping clients at
assisting in consolidating their focus and unlock the resources through acquisitions, takeovers, sell offs
and joint ventures. The final goal is the maximization of economic returns from assets employed or likely
to be employed for the business.

Our strength in asset reconstruction lies in the large clientele across various industries and know-how
which we have gathered with years of experience. This allows us to bring the right buyer and seller
together and formulate an appropriate resolution strategy after a detailed assessment of their individual
requirements. We have also increased access to numerous opportunities available through our
empanelment and dealings with several banks and asset reconstruction companies.

Our wide range of Asset Reconstruction Services consists of :
Identification of distress asset acquisition opportunities
Assessing synergies between the buyers and sellers
Asset valuation/ Business valuation
Due diligence & Resolution strategies
Fulfilling and assessing legalities
Interim Intellectual/ Business asset management
Arranging the lease/hire of business assets
Sourcing of surplus assets
Creation of an asset bank

Debt Restructuring
Debt restructuring is an adjustment made by both the debtor and the creditor to smooth out temporary
difficulties in the way of loan repayment.

Companies use debt restructuring in order to avoid non-payment on the existing loan or to take
advantage of low interest rate. A company restructures its debt by paying off the existing debt with a
new loan or by altering the terms and provisions of the existing debt.

Debt Re-structuring have been our major strong point. We provide effective solutions to restructure
debt profiles through the latest financial tools prevailing in the market.
Asset Reconstruction Companies are special entities which use market forces to consolidate and
attractively package lender interests and arrange funding for asset reconstruction. The need for Asset
reconstruction arises in India from the bad loans emanating out of a systemic banking crisis.
ARCs in India adopt a trust structure, whereby issuing pass through securities or pay through securities. A
generic business model of a typical ARC is to buy distressed assets from a Bank/Financial Institutions;
and then choose between directly securitizing them or first reconstructing the asset and then securitizing it
before sale to investors. Another opportunity to invest in the reconstruction exercise lies in partnering the
ARC in reconstructing debt. The same is unavailable to retail investors & only Qualified Institutional
Buyers can participate in it.
Any instrument issued by an ARC needs to possess certain features before it becomes palatable to the
investors. These include marketability, credibility of the issuer & credit enhancer, transparency, wide
distribution, homogeneity & the presence of a special purpose vehicle.
The regulatory framework under which asset reconstruction has evolved has been through a process of
upheaval since the initial financial sector reforms. The essentials of debt recovery include the
ascertainment of dues as reflected in Decree/Certificate and the execution of the same for realization of
amount. The deficiency of the legal framework in both these regards has been in the centre of attention of
the authorities & regulators. However, successive legislations have failed to address this issue with
success. Moreover, ambiguity & lack of clarity on various legal issues have further clouded the
environment.
The problem faced by ARCs, extend beyond just the regulatory framework. A number of issues like high
incidence of stamp duties, taxation of SPVs, lack of a proper market for the instruments, pricing
problems, allowing more participants, & credibility of current ARCs need to be addressed with great
urgency. Without these reforms, expecting to develop a proper environment for setting up & working of
ARCs would be a futile exercis

What Is Asset Reconstruction?

Asset reconstruction is the handling of distressed assets to attempt to recover their value and clear them
from the books. It arises in response to a financial crisis that causes the number of bad loans to rise
rapidly in response to a series of economic problems. Some governments directly fund asset
reconstruction programs as part of an economic recovery plan, and it is also possible to see private firms
performing this service.
The asset reconstruction company assumes bad assets from another company to clear them from that
company's books. It may purchase the assets at a very discounted price, causing the original company to
take a loss, but clearing nonperforming assets can allow it to start accurately assessing financial health
and working on a recovery plan. Once the company takes possession, it can work on recovering those
assets.
For example, an asset reconstruction company may assume a group of home loans in default. The
company can pursue collections and if this does not work, it can start foreclosing and selling the
properties in order to extract cash from the loans and close them out. The asset reconstruction company
specializes in this activity and can handle the process more efficiently than a regular financial institution,
because it has the personnel, experience, and support network to do so. It may own a real estate firm that
can handle the process of evaluating the properties, listing them, and making any necessary modifications
to make them more saleable.