Project Report

by :-

Ananya Das
 A REPORT
On

Financial products available in the

commercial market.
Project Financing.

At
Tata Metaliks limited (Headquaters)
Kolkata
Tata Centre. 43 Jawarharlal Nehru Road.
Kolkata-700071.West Bengal.India.

For the time period of

8 weeks (28-04-08 to 20-06-08 )

Under the guidance of

Mr. A.Mukherjee, Mr.B.Sen, Mr. K.Ghosh, Mr.
A.Dey
Faculties & Project Mentors.

Mr.Subhasish Dey
Financial Controller
2
 Project Guide

Acknowledgement

This project would not have been possible without the help
of some people. I would like to take this opportunity to thank
them for their invaluable inputs and constant support.

I would like to express my deepest appreciation to

Mr.Subhasis Dey- CS & GM.Tata Metaliks Ltd for having the
faith in me and giving me the opportunity to work in his
organization.

My sincere thanks to my project guide Mr.Subhasish Dey –

Financial Controller,Kolkata,Tata Metaliks Ltd. Without his
guidance and persistant help this dissertation would not
have been possible.

Prof. R.C Bhattachraya for providing the excellent

opportunity to work in a corporate environment.

My deep gratitude to my project mentor members, Mr

A.Mukherjee, Mr.A.Dey, Mr.B.Sen, Mr.K.Sen of GBS for always
extending their humble support.

I would also like to thank all executives of Tata Metaliks Ltd ,

Kolkata, who have come forward with their helping hands
whenever any assistance has been sought.

My sincere thanks to CRP team of GBS.

I thank my parents and friends for their love and support

while I decided to be a professional student.

3
 23 April,2008

Mr.Subhabrata Mazumder
Corporate Relations & Placement
Globsyn Business School
Salt Lake Electronics Complex
Kolkata-700091

Dear Sir,
Re: Summer Training Project for PGDIB Student at TML from your institution

We are pleased to accept Ms.Ananya Das from your institution for doing her summer
training project work towards partial fulfillment of your requirement for the award of her
degree/diploma.

The project duration will be from 28th April to 28th June, 2008.Please advise your
student to report to Mr.Subhasish Dey, Financial Controller at our kolkata office, along
with a copy of this letter on the mentioned date.

During the project work at TML, the student will be bound by such norms and discipline
and conduct as may be prescribed by TMl.TML reserves the right to cancel the project
work of any student who do not comply with the company's code of conduct & do not
demonstrate the academic seriousness necessary for successful completion of the project
work.

If the candidate fails to report by the above date, this letter shall stand automatically
withdrawn.

With warm regards,

For TATA METALIKS LIMITED

Subhasis Dey
CFO & CS

4
 Declaration
I, Ananya Das,student of Globsyn Business School, PGDIB -
01,state that I have completed my 8 week internship at Tata
Metaliks Ltd,Kolkata and that the topic of my project reports
is stated as under :

 Financial Products available in the commercial

market.
 Project Financing.

I had the opportunity to have a close interaction with the

finance department and I have used the valuable inputs
from them in my project report.

All the information that I have provided in my report are

true and fair to the best of my knowledge.

5
 TABLE OF CONTENTS
1. INTRODUCTION 9
1.1 History of pig-iron in India 10
1.2 Overall Scenario-Recent India 10
1.3 Profile of the Company 11
1.4 Kharagpur Plant 13
1.5 Redi Plant 14
1.6 Focus Market,Customer & Competitors 15

2. FINANCIAL MARKET 16
2.1 Capital Market 19
A. Stock Market 20
B. Debt Market 22
A.American Depository Receipts 25
B.Global Depository Receipts 26
2.2 Money Market 28
2.3 Commodity Market 30
2.4 Foreign Exchange Market 31
2.5 Derivative Market 32

3. PROJECT FINANCING 35
3.1 Presentation and Analysis of Data 36
A. Initiation 36
B. Planning and Design 37
C. Executing 39
D. Monitoring and Controlling 43
E. Closing 45

6
4. SUGGESTIONS AND CONCLUSIONS 46

5. ANNEXURE 47

6. BIBLIOGRAPHY 54

List Of Figures

1. Vision and Value Statement 12

2. Kharagpur Plant Layout 13

3. Redi Plant Layout 14

4. Types of Financial Market 18

5. Formation of Capital Market 19

6. Division of Capital Market 20

7. Bond Formation 23

8. Project Development Stages 36

9. Financial projection of TML in a chart form 37

10. Chart showing the calculation of Beta 44

7
 List of Tables

1.Table illustrating where Financial markets fit in the

17
relationship between lenders and borrowers

3. Calculation of Capital which can be raised by rights issue 40

8
1.1 History of Pig-Iron in India
1.2 Overall Scenario
1.3 Profile Of the Company
1.4 Kharagpur Plant
1.5 Redi Plant
1.6 Focus Market, Customer and
Competitors

9
1.1 HISTORY OF PIG IRON BUSINESS
IN
INDIA
Around 1920, pig iron production was started in India & around 1930, it started attracting
attention. From 1930 to 1933, production stood at 1 million tons p.a.& in the period from
1936 to 1938 production increased to 1.6 million tons p.a. Much of this production was
exported. The growing production & export of pig iron was of much interest that time.
Great Britain was a major importer of pig iron for which India was given a preferential
access to the British market. Also price of pig iron fluctuated a great deal. After a
substantial rise in the price at 1937, pig iron production became profitable in India.

1.2 OVERALL SCENARIO-RECENT

INDIA
Foundry Grade Pig Iron is one of the principal charge components for many Gray Iron
Foundries.

Major Pig Iron producers are: TML, KFIL, Sesa Goa, Neco, Dempo, KISCO
(Kudremukh), VISA, Satavanaha, Lanco Ferro, IISCO, Kajaria Iron Ltd., Nilachal Ispat,
Kalinga Iron, KIC Metaliks Ltd., etc.

Pig iron being the basic raw material for the foundries, any change in the iron and steel
consumption has a direct impact on the pig iron industry. Moreover, healthy growth
forecasts for the future are indicators of a good growth opportunity for the pig iron
industry and therefore for the performance of any Company.

Several new pig iron producers were setting up production units in West Bengal. It is
hoped that once the new producers start manufacturing there would be an adequate
supply of pig iron in the market.
With the growth of the economy, demand for pig iron is also increasing. The global steel
industry, for which pig iron is a basic raw material, continues to grow at an impressive
rate.
A continuous rise in the price of pig iron is being recorded.
10
1.3 PROFILE OF THE COMPANY

Tata Metaliks Limited was incorporated on 10th October,1990 under the Companies' Act,
1956, and obtained certificate for commencement of business on 14th December,
1990.The company was incorporated under the name of Tata Korf Metals West Bengal
Ltd and began its commercial production in 1994. The name of the company was
subsequently changed to Tata Metaliks Ltd. With effect from 16th January, 1992.TML is a
public limited company. It was promoted by Tata Steel Limited (formerly, The Tata Iron
and Steel Company Limited) and assisted by The West Bengal Industrial Development
Corporation. The promoter company, Tata Steel, and resident individuals each hold 47%
of the shares, the balance being held by West Bengal Industrial Development
Corporation, corporate bodies and financial institutions (including Foreign Institutional
Investors).The company entered into an agreement with Tata Korf services Ltd.for
technical knowhow and consultancy services for the project.The agreement gurantees
production of hot metal at 265 tonnes a day.Another agreement was entered into with
M/s. CESCON Ltd., for consultancy on captive power plant and M/s. United Consultants
India Ltd. for overall civil construction and structural work.

TML is the manufacturer & seller of Pig Iron - 1. Basic Grade & 2. Foundry Grade.
Recently, TML is the largest & lowest cost producer of pig iron in India.In India, only
Tata Metaliks has two manufacturing units of nearly same size, in the Eastern
(Kharagpur) and Western (Redi) part of the country, consisting of 5 Mini Blast Furnaces
and related facilities including Captive Power Plants.

The Company is aware of its social responsibilities in protecting the Environment in and
around its factory.The Company constructed a metalled link Road from National
Highway 6 to the factory at Gokulpur(Kharagpur) as a goodwill gesture with a view to
improve infrastructural development of the region.In 1998 Tata Metaliks Limited
engaged in manufacturing high-quality pig iron and has been awarded ISO-9002
certificate by IRQS, an agency accredited by RVC Dutch Council.The Company won the
first prize in the Indian Institute of Metals' National Quality Competition in the category
of Pig-Iron.

11
 VISION

STATEMENT

VALUE
S

12
 1.4 KHARAGPUR PLANT
The company’s manufacturing facilities operate at Gokulpur,near kharagpur,West
Bengal.Commercial production at kharagpur factory commenced in April,1994 with 1
mini blast furnance and captive power plant.The 2nd mini blast furnance was intalled in
26th Febuary 2005, which doubled the production of the unit.
YEAR PRODUCTION (Tonnes)

2004 90000
2005 163,000
2006 4,19,137(Jointly with
Redi Plant)
2007 3,43,284

KHARAGPUR PLANT LAYOUT

13
 1.5 REDI PLANT
In January, 2006, the Company had taken over Usha Ispat Limited, Redi
unit, Maharashtra. The three blast furnaces of this unit would double the
production capacity from 3,00,000 tpa in 2006 to 650,000 tpa of hot metal
by 2007-08. In the meanwhile, the second blast furnace has become
operational and already started contributing to the annual production. The
increased volume would help us strengthen our national as well as global
presence and make us the largest player among the foundry grade pig
manufacturers in not just the country but also the world. Production in the
FY08 was 1,78,140 tons.

14
FOCUS MARKETS

The main focus of the market of Tata Metaliks Ltd is Indian foundaries
catering to
 Automobile engine blocks
 Crankshafts
 Gear
 Rolling mill rolls
 Motor and generator housings
 Railway and machine tools
 Tractor and Pump
 Secondary steel mills
 Pressure tight precession castings

15
MAJOR COMPETITORS

 Sesa Goa
 KFIL
 Neco
 Dempo
 KISCO (Kudremukh)
 VISA
 Satavanaha
 Lanco Ferro

MAJOR CUSTOMERS

 Kamal Iron
 Kaushalya Iron
 Shivam Corporation India
 Telco Construction Equipment Co.
 Tata Motors & Tractors Ltd.
 Steel Syndicate
 Tata International Ltd. (Export is done through this company)

16
 2.1 Capital Market

2.2 Money Market

2.3 Commodity Market

2.4 Foreign Exchange Market

2.5 Derivative Market

2. FINANCIAL MARKET

In economics, a financial market is a mechanism that allows people to easily buy and sell
(trade) financial securities (such as stocks and bonds), commodities (such as precious
metals or agricultural goods), and other fungible items of value at low transaction costs
and at prices that reflect the efficient market hypothesis.

The basic needs in the financial world, are the following :-

 The need to invest excess money (supply).
 The need to borrow money (demand) where there is shortage of money.

Financial markets could mean:

1. Organizations that facilitate the trade in financial products. i.e. Stock exchanges
facilitate the trade in stocks, bonds and warrants.

17
2. The coming together of buyers and sellers to trade financial products. i.e. stocks and
shares are traded between buyers and sellers in a number of ways including: the use of
stock exchanges; directly between buyers and sellers etc.
Financial markets can be domestic or they can be international.

Financial markets facilitate--

 The raising of capital (in the capital markets);
 The transfer of risk (in the derivatives markets);
 International trade (in the currency markets) and are used to match those who
want capital to those who have it.

To understand financial markets, let us look at what they are used for, i.e. what is their
purpose?
Without financial markets, borrowers would have difficulty finding lenders themselves.
Intermediaries such as banks help in this process. Banks take deposits from those who
have money to save. They can then lend money from this pool of deposited money to
those who seek to borrow. Banks popularly lend money in the form of loans and
mortgages.

More complex transactions than a simple bank deposit require markets where lenders and
their agents can meet borrowers and their agents, and where existing borrowing or
lending commitments can be sold on to other parties. A good example of a financial
market is a stock exchange. A company can raise money by selling shares to investors
and its existing shares can be bought or sold.

Relationship between lenders and borrowers

Financial Financial
Lenders Borrowers
Intermediaries Markets

Interbank Individuals
Banks
Stock Exchange Companies
Individuals Insurance Companies
Money Market Central Government
Companies Pension Funds
Bond Market Municipalities
Mutual Funds
Foreign Exchange Public Corporations

Fig :The following table illustrates where financial markets fit in the relationship
between lenders and borrowers.

18
TYPES OF FINANCIAL MARKETS

CAPITAL
MARKET

MONEY
MARKET

FINANCIAL COMMODIT
Y MARKET
MARKET
FOREIGN
EXCHANGE
MARKET

DERIVATIVES
MARKET

2.1 CAPITAL MARKET

Capital markets are the mechanism that allows the exchange of money between
companies and investors, companies and banks, and investors and banks as each party
seeks to raise capital or capital to work.

19
Fig : Formation of Capital Market

The market in which corporate equity and longer-term debt securities (those maturing in
more than one year) are issued and traded.
Financial instruments traded in the capital market include shares, and bonds issued by the
Australian Government,State governments, corporate borrowers and financial
institutions.

There are actually two levels of the capital markets in which investors participate : the
primary markets and the secondary markets.The initial public offering market is a subset
of the primary market.Here firms go public by offering shares to the public for the first
time.Secondary markets are markets in which existing,already outstanding,securities are
traded among investors.

The main benefits of Capital markets are :-

(i) They support the mobilisation of domestic savings by providing investors with
alternatives for investment and risk divrsification.
(ii) They permit companies and governments to raise long-term esources at lower
cost.
(iii) They promote efficiency competitiveness in the financial system.
(iv) They create an avenue for population to participate in the corporate sector and
share in its wealth through the ownership of securities.

20
Fig : Segmentation of Capital Market

In domestic capital market we shall see the equity(stock) market and the debt market
which is described in detail below.

A. Stock (Equity) Market

A stock market or (equity market) is a private or public market for the trading of
company stocks or derivatives of company stock at an agreed price :both of these are
securities listed on a stock exchange as well as those only traded privately.Stock market
can be further divided into 2 types :-

1. Equity Shares
2. Preference Shares

1.Equity Shares

Equity share capital means :-

 With voting rights

 With differential rights.The expression “shares with differential voting rights” is
defined as a share that is issued with differential rights as to “dividend,voting or
otherwise” in accordance with such rules and subject to such as may be
prescribed.

21
The important characteristics of equity shares are as follows :

 Equity shares carry voting rights at the general meetings of the company and have
the right to control the management of the company.
 Equity shares carry the right to share in the profits of the company in the form of
distribution of dividend and bonus shares.
 In the event of winding up of the company,equity share capital is repayable only
after repayment of the claims of the creditors and preference share capital.
 Equity shareholders enjoy various rights as members, which include, inter alia,
the following rights :
 Right of pre-emption in the matter of fresh issue of capital.
 Right to apply to the Court to have any variation of their rights set aside.
 Right to receive a copy of the statutory report.
 Right to apply to the Central Government to call an annual general
meeting when the company fails to call such a meeting.
 Right toapply to the Company Law Board for calling an extraordinary
general meeting of the comapany.
 Right to receive copies of annual accounts along with auditors report.

Methods of issue :-

There are various methods of issuing equity capital.They are :

 Issue through prospectus
 Offer of sale
 Private stock placing
 Rights issue

2. Preference shares

A preference share is said to be a hybrid financial instrument.It is a capital stock which

provides a specific dividend that is paid before any dividends are paid to common stock
holders, and which takes precedence over common stock in the event of a liquidation.
Like common stock, preference shares represent partial ownership in a company,
although preferred stock shareholders do not enjoy any of the voting rights of common
stockholders. Also unlike common stock, preference shares pay a fixed dividend that
does not fluctuate, although the company does not have to pay this dividend if it lacks the
financial ability to do so.The main benefit to owning preference shares are that the
investor has a greater claim on the company's assets than common stockholders.
Preferred shareholders always receive their dividends first and, in the event the company
goes bankrupt, preferred shareholders are paid off before common stockholders.

There are various types of preferred stocks that are common to many corporations :-

 Cumulative preferred stock - If the dividend is not paid, it will accumulate for
future payment.
 Non-cumulative preferred stock - Dividend for this type of preferred stock will
not accumulate if it is unpaid
22
  Convertible preferred stock - This type of preferred stock carries the option to
convert into a common stock at a prescribed price.
 Exchangeable preferred stock - This type of preferred stock carries the option to
be exchanged for some other security upon certain conditions.
 Participating preferred stock - This type of preferred stock allows the possibility
of additional dividend above the stated amount under certain conditions.
 Perpetual preferred stock - This type of preferred stock has no fixed date on which
invested capital will be returned to the shareholder, although there will always be
redemption privileges held by the corporation. Most preferred stock is issued
without a set redemption date.
 Puttable preferred stock - These issues have a "put" privilege whereby the holder
may, upon certain conditions, force the issuer to redeem shares.

B. DEBTS

Debt Markets are markets for the issuance, trading and settlement in fixed income
securities of various types and features. Fixed income securities can be issued by almost
any legal entity like central and state governments, public bodies, statutory corporations,
banks and institutions and corporate bodies.

Types of debt :-

1. Simple loan
2. Syndicated loan
3. Bond
4. Term Loan

1. SIMPLE LOAN
A basic loan is the simplest form of debt. It consists of an agreement to lend a principal
sum for a fixed period of time, to be repaid by a certain date. In commercial loans
interest, calculated as a percentage of the principal sum per annum, will also have to be
paid by that date.
In some loans, the amount actually loaned to the debtor is less than the principal sum to
be repaid; the additional principal has the same economic effect as a higher interest rate.

2. SYNDICATED LOAN
Syndicated lending is an arrangement under which two or more banks (referred as ‘the
syndicate’)come together and agree to grant a loan to a borrower on similar terms and
conditions, through a single document or a set of documents,administered by an ‘agent’

23
bank.It is a principal source of finance for major borrowers, whether corporates or
sovereign.

Advantages to the borrower :-

 Amount of money to be borrowed is usually very large, such large sums can be
 In case of borrowing from syndicate (instead of multiple banking) it is convenient
for the borrower to have single-point (centralised) negotiation providing
flexibility and speed.
 Single set of documentation/uniform terms and conditions.
 Borrower is able to raise resources at competitive rates.

Advantages to the participating Bank :-

 Credit risk is spread/distributed among many banks.In view of exposure limit and
higher capital, adequacy ratio is not considered prudent for one bank to undertake
such lending.
 Syndicated loan facility strengthens the relationship between the borrowers and a
bank, thereby providing oppurtunity to enter new market segments of high net
worth borrowers.
 A small bank can also participate in lending to the large corporates thereby
enhancing its market possibility.
 With syndicated loan being administrated by a common ‘agent’ bank
administration of the credit facility is convenient for the participating banks.
 There is a secondary market for the syndicated loan- any bank can at a later stage
sell its share to the other banks.

3. BONDS

Fig : Bond formation

Bond is a debt security, similar to an I.O.U. When you purchase a bond, you are lending
money to a government, municipality, corporation, federal agency or other entity known
as the issuer. In return for the loan, the issuer promises to pay you a specified rate of
interest during the life of the bond and to repay the face value of the bond (the principal)
when it “matures,” or comes due.
Among the types of bonds you can choose from are: U.S. government securities,
municipal bonds, corporate bonds, mortgage and asset-backed securities, federal agency
securities and foreign government bonds.

24
(i) Municipal Bonds - Municipal bonds are debt obligations issued by states, cities,
counties and other governmental entities to raise money to build schools, highways,
hospitals and sewer systems, as well as many other projects for the public good.
When you purchase a municipal bond, you are lending money to an issuer who promises
to pay you a specified amount of interest (usually paid semiannually) and return the
principal to you on a specific maturity date.

(ii) Government Bonds - One of the world’s largest and most liquid bond markets is
comprised of debt securities issued by the U.S. Treasury, by U.S. government agencies
and by U.S government-sponsored enterprises. U.S. Treasury securities, used to finance
the federal government debt, are also considered to have the bond market’s lowest risk
because they are guaranteed by the U.S. government’s “full faith and credit” or, in other
words, its taxing authority. Government agencies and government-sponsored enterprises
such as Ginnie Mae, Fannie Mae and Freddie Mac also issue debt
to support their role in financing mortgages that enable more Americans to own homes.
These agency securities are also popular investments because of their high credit ratings.
In general,fixed income securities are classified according to the length of time before
maturity.these are the three main categories :-
Bills- debt securities maturing in less than one year.

Notes-debt securities maturing in one to ten years.

Bonds-debt securities maturing in more than ten years.

(iii) Corporate Bonds - Corporate bonds (also called corporates) are debt obligations,
or IOUs, issued by private and public corporations. They are typically issued in multiples
of $1,000 and/or $5,000. Companies use the funds they raise from selling bonds for a
variety of purposes, from building facilities to purchasing equipment to expanding the
business.
When you buy a bond, you are lending money to the corporation that issued it. The
corporation promises to return your money, or principal, on a specified maturity date.
Until that time, it also pays you a stated rate of interest, usually semiannually. The
interest payments you receive from corporate bonds are taxable. Unlike stocks, bonds do
not give you an ownership interest in the issuing corporation.

(iv) Mortgage-backed securities - Mortgage-backed securities (MBS) are primarily

“agency” securities issued by a government agency such as Ginnie Mae or a government-
sponsored enterprise such as Fannie Mae or Freddie Mac. These agencies typically
guarantee the interest and principal payments on their securities and are considered to
offer strong credit quality due to their access to lines of credit from the U.S. Treasury.
The mortgage-backed securities market also includes “private-label” mortgage securities
issued by subsidiaries of investment banks, financial institutions and home builders, but
these represent a small portion of the total mortgage-backed securities outstanding.

(v) Asset-backed securities - Asset-backed securities (ABS) usually carry some form
of credit enhancement such as bond insurance, to make them attractive to investors.

25
 4. Term Loan
A term loan is a secured commercial loan made to business concerns for a specific period
(normally three to ten years).It is repaid with interest, usually with regular periodical
payments.
Term Loan usually are granted for the purchase of longer-term fixed assets ( land,
buildings and equipment etc. ). Other purposes may include working capital, business
expansion investments and company acquisitions.
The repayment term of an individual loan will vary depending on the useful life of the
asset being financed and the lending policy of the financial institution (e.g. 3 years for a
computer, 10 years for machinery etc.).
The interest rate on a term loan will be higher than the rate on an operating loan to reflect
the risk associated with the longer term.

Advantages :-

• Fixed interest rate for the full term. The interest rate risk is removed and the
borrowers interest cost is pre-determined thus simplifying the budget process.
• Flexible term and amortization gives the borrower the ability to structure a
financing suitable to its specific circumstances.
• Loan cannot be recalled by the lender unless default has occurred.

Diaadvantages :-

• Loan amount is limited to a percentage of the asset being financed. The exact amount
will depend on the individual transaction.
• Term Loan usually have prepayment restrictions and if allowed at all, will attract an
interest penalty. Lender may require security from the borrower which is in addition
to security on the asset(s) being financed.
• Typically Term Loan command a one-time processing fee of +/- 1% of the value of
the loan.

In the international capital market we can find the financial instruments like American
Depository Receipts and Global Depository Receipts which is explained below.

A. American Depository Receipts

Introduced to the financial markets in 1927, an American depository receipts is a stock
that trades in the united states but represents a specified number of shares in a foreign
26
corporation.ADR are brought and sold on American markets just like regular stocks, and
are issued/sponsored in the U.S by a bank or brokerage.
ADRs are introduced as a result of the complexities involved in buying shares in foreign
countries and the difficulties associated with the trading at different prices and currency
values.
Adrs are issued with no complexity at all possible rates.
For this reason the US bank simply purchase a bulk lot of shares from the
company,bundle the shares into groups and re-issues them on either the New York Stock
Exchange(NYSE),American stock exchange(AMEX) or NASDAQ.In return the foreign
company must provide detailed financial information to the sponsorbank.The depository
bank sets the ratio of U.S ADRs per home country share. This ratio can be anything less
than or greater than 1. This is done because the banks wish to price an ADR high enough
to show substantial value, yet low enough to make it affordable for individual investors.
Most investors try to avoid investing in penny stocks, and many would shy away from a
company trading for 50 Russian roubles per share, which equates to US$1.50 per share.
As a result, the majority of ADRs range between $10 and $100 per share. If, in the home
country, the shares were worth considerably less, then each ADR would represent several
realshares.

There are three different types of ADR issues:

♦ Level 1 - This is the most basic type of ADR where foreign companies
either don't qualify or don't wish to have their ADR listed on an exchange.
Level 1 ADRs are found on the over-the-counter market and are an easy
and inexpensive way to gauge interest for its securities in North America.
Level 1 ADRs also have the loosest requirements from the Securities and
Exchange Commission (SEC).

♦ Level 2 - This type of ADR is listed on an exchange or quoted on

Nasdaq.Level 2 ADRs have slightly more requirements from the SEC, but
they also get higher visibility trading volume.

♦ Level 3 - The most prestigious of the three, this is when an issuer floats a
public offering of ADRs on a U.S. exchange. Level 3 ADRs are able to
raise capital and gain substantial visibility in the U.S. financial markets.

The advantages of ADRs are twofold. For individuals, ADRs are an easy and cost-
effective way to buy shares in a foreign company. They save money by reducing
administration costs and avoiding foreign taxes on each transaction. Foreign entities like
ADRs because they get more U.S. exposure, allowing them to tap into the wealthy North
American equities markets.

B. Global Depository Receipts

A Global Depository Receipt or Global Depositary Receipt (GDR) is a certificate issued

by a depository bank, which purchases shares of foreign companies and deposits it on the
account. GDRs represent ownership of an underlying number of shares.

27
Global Depository Receipts facilitate trade of shares, and are commonly used to invest in
companies from developing or emerging markets - especially Russia.
Prices of GDRs are often close to values of related shares, but they are traded and settled
independently of the underlying share.
Foreign Investment through GDRs is treated as Foreign Direct Investment
Indian companies are allowed to raise equity capital in the international market through
the issue of Global Depository Receipt (GDRs). GDRs are designated in dollars and are
not subject to any ceilings on investment. An applicant company seeking Government's
approval in this regard should have consistent track record for good performance
(financial or otherwise) for a minimum period of 3 years.These instruments are also
called euro depository receipts when private markets are attempting to obtain euros.

Use of GDRs :-

The proceeds of the GDRs can be used for financing capital goods imports, capital
expenditure including domestic purchase/installation of plant, equipment and building
and investment in software development, prepayment or scheduled repayment of earlier
external borrowings, and equity investment in JV/WOSs in India.

Advantages of GDRs to Investors :-

(i) Convenient means to hold foreign shares and diversify risk

(ii) Listed on european stock exchange.
(iii) Market-making mechanism ensures continuous liquidity-can be
(iv) exchanged for the underlying shares.Cross-border fungibility.

Advantages of a GDR issue to the issuer :-

(i) Access to a broader and deeper market

(ii) issuer receives money in foreign currency.However there is no foreign exchange
risk as the securities are denominated in domestic currency.
(iii) It is possible to get finer prices.
(iv) Cost effective
(v) The investor base is broader and more diversified.
(vi) Administratively simpler for corporate actions.The issuer has to deal with the
depository bank alone instead of dealing with the multitude of investors.
(vii) issuers visibilty enhanced globally.

2.2. MONEY MARKET

28
The money market is the global financial market for short-term borrowing and lending. It
provides short-term liquid funding for the global financial system.
Common money market instruments are :-

(i) Treasury Bills - Short-term debt obligations of a national government that

are issued to mature in 3 to 12 months.
Treasury bills are short term government debt instruments. In the United States, for
example, the market for short term central government debt is mainly comprised of
Treasury bills with a maturity of one year or less. Standard maturities are 3 months, 6
months and, in some cases, 1 year.
Liquidity in short-term government debt is usually high. This is because of :
 The high credit standing/low default risk of the issuer i.e. government
 The homogeneity of the instruments
 The high (and regular) volume and low denomination size of the debt.
Treasury bills are usually issued at a discount and are redeemed at their full face value at
maturity.

(ii)Bankers’ Acceptance - A draft issued by a bank that will be

accepted for payment, effectively the same as a cashier's check.
A Bankers’ Acceptance (BA) is a vehicle created to facilitate commercial trade
transactions and a specific BA relates to a specific transaction with underlying goods.
The value of the underlying goods is reflected in the face value of a bill or term draft -
which represents the promise of the counterparty to the transaction to pay for the goods at
a specific time in the future.
The bill becomes a Bankers’ Acceptance when a bank accepts the responsibility to pay
the creditor, (the holder of the term draft), if the debtor (the counterparty) fails to repay.
This is called discounting the term draft.
Bankers Acceptances are seen as very safe investments as not only do they carry the
irrevocable obligation of a least one bank to honour payment, they also represent a
natural business transaction with underlying goods.
Being such a creditworthy debt security Bankers Acceptances are a relatively low yield
instrument. In fact, because BA’s are guaranteed by banks, rates closely follow those on
negotiable CDs. BAs tend to trade slightly lower than CDs because of their slightly
higher liquidity.
As with CDs, the market can be tiered. This is because some bank names are perceived as
a better credit risk than others, and some goods are not as resalable as others.
A bank which discounts an accepted term draft for an exporter can offer to sell the paper
direct to investors.

(iii) Commercial Paper - An unsecured promissory notes with a fixed

maturity of one to 270 days; usually sold at a discount from face value.
Commercial Paper (CP) is short term unsecured debt issued by companies in the form of
promissory notes as an obligation of the issuer.
CP is typically issued at a discount to face value - but interest bearing notes can be
requested. If paper is issued as interest bearing it will still be quoted on a discount basis.
CP can be issued in bearer or registered form.

29
The scale of any CP issue makes it exclusively a wholesale market, attracting banks,
money market funds, insurance companies and other large cash rich firms as investors.

(iv) Certificate of Deposit - A time deposit at a bank with a specific

maturity date; large-denomination certificates of deposits can be sold before maturity.
Certificates of Deposit (CDs) are securitised bank time deposits.
The CD market is a tiered market offering securities backed by different ‘names’ and so a
range of liquidities and yields. The creditworthiness of a bank is evaluated by impartial
rating agencies such as Moodys and Standard and Poors.

(v) Repurchase Agreements - Short-term loans—normally for less

than two weeks and frequently for one day—arranged by selling securities to an investor
with an agreement to repurchase them at a fixed price on a fixed date.
Repurchase(repo) agreement can be seen as a short term swap between cash and
securities. Repurchase agreements, or repos, are specialised but important aspects of
many markets, especially those for government securities.
In essence, if a security holder wants to maintain his or her long-term position but needs
cash for a short period, he or she can enter into a repo contract whereby the securities are
sold together with a binding agreement to repurchase them at a future date, usually fairly
near-term.
The effect is to provide the security holder with a short-term loan based on the collateral
of the government securities he or she owns. In major markets with repo systems, it is a
cheap, simple and effective way to raise short-term funds.

UsesofRepo

It helps banks to invest surplus cash

It helps investor achieve money market returns with sovereign risk.
It helps borrower to raise funds at better rates
An SLR surplus and CRR deficit bank can use the Repo deals as a convenient way of
adjusting SLR/CRR positions simultaneously.
RBI uses Repo and Reverse repo as instruments for liquidity adjustment in the system.

2.3 COMMODITY MARKET

30
A commodity futures contract is a type of derivative, or financial contract, in which two
parties agree to transact a set of financial instruments or physical commodities for
delivery at a particular price at a later date. If you buy a commodity contract, you are
basically agreeing to buy something, for a set
price, that a seller has not yet produced. But participating in the commodity market does
not necessarily mean that you will be responsible for receiving or delivering large
inventories of physical commodities, remember, buyers and sellers in the futures market
primarily enter into futures contracts to hedge risk or speculate rather than edelivery
(which is the primary activity of the cash/spot market). That is why Commodities are
used as financial instruments by not only producers and consumers but also speculators.
A commodity exchange is an exchange where various commodities and derivatives
products are traded.Commodities exchanges,usually trade future contracts on
commodities.Most commodity market across the world trade in agricultural products and
other raw materials(like wheat,barley,sugar,maize,cotton,cocoa,coffee,oil[crude
Oil,kerosene,gasoline],metals[gold,silver,platinum,alluminium,palladium],etc)and
contracts based on them.these contracts can include spots,forwards,futures.Under such
traded future contracts for example,a farmer raising an agricultural product,say wheat
,can sell a future contract on his wheat which would be harvested after several months
and the future contract guarantees the price he will be paid when he delivers.Similarly,the
prospective buyer of the agricultural product who buys the future contract gets the
guarantee of the price which will not go up when it is delivered.This protects the farmer
from price fall and the buyer from price rises.Future contracts are useful for the producer
because he can get an idea of the price likely to prevail and thereby help them quote a
realistic price and hedge risk.In case of physical delivery is to be made when the contract
matures,such physical delivery requires stringent application of quality standards to
safeguard the interest of the buyers.
The consensus in the investment world is that the Commodities market is a major
financial hub, providing an outlet for intense competition among buyers and sellers and,
more importantly, providing a center to manage price risks. The commodity market is
extremely liquid, risky, and complex by nature, but it can be understood if we break
down how it functions.
Futures contracts perform two important functions:price discovery and hedging of price
risk in a commodity.
In international bourses traders can also use financial instruments like call and put
options,not yet allowed in India.Speculators also buy and sell the futures contracts to
make a profit and provide liquidity to the system.

2.4 FOREIGN EXCHANGE MARKET

31
The foreign exchange (currency or forex or FX) market exists wherever one currency is
traded for another. It is by far the largest financial market in the world, and includes
trading between large banks, central banks, currency speculators, multinational
corporations, governments, and other financial markets and institutions. The average
daily trade in the global forex and related markets currently is over US$ 3 trillion.

Features of Foreign Exchange Market :-

♦ Market where foreign currencies are traded
♦ Round the clock
♦ Global Market
♦ Large volume of transactions
Participants of foreign exchange market
♦ Individuals : tourists, migrants
♦ Firms : importers and exporters
♦ Banks : short position, long position, square position
♦ Governments/monetary authorities : market intervention
♦ International agencies : lending
♦ Two-tier market :
- First tier : ultimate customer and banker
- Second tier : between banks
Classification of participants :-
♦ Non-banking entitities: business transactions and hedging
♦ Banks: foreign exchange dealers
♦ Arbitrageurs: profit seeking from variations in rates in different markets
♦ Speculators: profit seeking from movements in exchange rates
Types of market in foreign exchange are :-
♦ Spot market
♦ Forward market
♦ Derivatives markets: currency futures and options

In the foreign exchange market the derivative products like the forward contracts,future
contracts,options and swaps are traded round the clock at huge volumes which are
explained in the next section and the spot market is explained below.

Spot Market
♦ Currencies traded for immediate delivery at rates prevailing at the time of
transaction
♦ Actual delivery (electronic transfer) may take two working days
♦ Currency arbitrage: buying a currency at cheaper rate in one market and
selling at a higher rate in another market
–Two point arbitrage
–Triangular (three point) arbitrage – three currencies
♦ Currency speculation: buying and holding a currency for sale at a higher
rate in the near future

32
2.5 DERIVATIVES MARKET
Derivatives are financial instruments whose value changes in response to the changes in
underlying variables.The Derivatives Market is meant as the market where exchange of
derivatives takes place. Derivatives are one type of securities whose price is derived from
the underlying assets. And value of these derivatives is determined by the fluctuations in
the underlying assets. These underlying assets are most commonly stocks, bonds,
currencies, interest rates, commodities and market indices.The Derivatives can be
classified as Future Contracts, Forward Contracts, Options, Swaps and Credit
Derivatives.

(i) Future contracts – A futures contract is a standardized contract, traded

on a futures exchange, to buy or sell a certain underlying instrument at a certain date in
the future, at a specified price. The future date is called the delivery date or final
settlement date. The pre-set price is called the futures price. The price of the underlying
asset on the delivery date is called the settlement price.
A futures contract gives the holder the obligation to buy or sell, which differs from an
options contract, which gives the holder the right, but not the obligation. In other words,
the owner of an options contract may exercise the contract, but both parties of a "futures
contract" must fulfill the contract on the settlement date. The seller delivers the
commodity to the buyer, or, if it is a cash-settled future, then cash is transferred from the
futures trader who sustained a loss to the one who made a profit. To exit the commitment
prior to the settlement date, the holder of a futures position has to offset their position by
either selling a long position or buying back a short position, effectively closing out the
futures position and its contract obligations.
Futures contracts, or simply futures, are exchange traded derivatives. The exchange's
clearinghouse acts as counterparty on all contracts, sets margin requirements, and
crucially also provides a mechanism for settlement.

(ii)Forward contracts - A forward contract is an agreement between two

parties to buy or sell an asset (which can be of any kind) at a pre-agreed future point in
time. Therefore, the trade date and delivery date are separated. It is used to control and
hedge risk, for example currency exposure risk (e.g., forward contracts on USD or EUR)
or commodity prices (e.g., forward contracts on oil).
One party agrees (obligated) to sell, the other to buy, for a forward price agreed in
advance. In a forward transaction, no actual cash changes hands. If the transaction is
collateralized, exchange of margin will take place according to a pre-agreed rule or
schedule. Otherwise no asset of any kind actually changes hands, until the maturity of the
contract.
The forward price of such a contract is commonly contrasted with the spot price, which is
the price at which the asset changes hands (on the spot date, usually two business days).
The difference between the spot and the forward price is the forward premium or forward
discount.

(iii) Options - Options are financial instruments that convey the right, but not the
obligation, to engage in a future transaction on some underlying security, or in a futures
contract. In other words, the holder does not have to exercise this right, unlike a forward

33
or future. For example, buying a call option provides the right to buy a specified quantity
of a security at a set strike price at some time on or before expiration, while buying a put
option provides the right to sell. Upon the option holder's choice to exercise the option,
the party who sold, or wrote, the option must fulfill the terms of the contract.

The financial types of financial options are :-

♦ Exchange traded options (also called "listed options") are a class of exchange
traded derivatives. Exchange traded options have standardized contracts, and
are settled through a clearing house with fulfillment guaranteed by the credit
of the exchange. Since the contracts are standardized, accurate pricing models
are often available. Exchange traded options include:
stock options,
commodity options,
bond options and other interest rate options
index (equity) options, and
options on futures contracts
♦ Over-the-counter options (OTC options, also called "dealer options") are
traded between two private parties, and are not listed on an exchange. The
terms of an OTC option are unrestricted and may be individually tailored to
meet any business need. In general, at least one of the counterparties to an
OTC option is a well-capitalized institution. Option types commonly traded
over the counter include:
interest rate options
currency cross rate options, and
options on swaps or swaptions.
Employee stock options are issued by a company to its employees as
compensation.

(iv) Swaps - Traditionally the exchange of one security for another to change the
maturity,or quality of issues (stocks or bonds),or because investment objectives have
changed.recently swaps have grown to include currency swaps and interest rate swaps.
If firms on different countries have comparitive advantages on interest rates ,then a swap
could benefit both the firms.For example one firm may have a lower fixed interest
rate,while another has access to lower floating interest rate.Thses firms could swap to
take advantage of lower rates.

♦ Currency swap-Involves the exchange of principal and interest in one

currency for the same in another currency. It is considered to be a foreign
exchange transaction and is not required by law to be shown on the balance
sheet.

♦ Interest rate swap –An agreement between two parties (known as

counterparties) where one stream of future interest payments is exchanged for
another based on a specified principal amount. Interest rate swaps
often exchange a fixed payment for a floating payment that is linked to an
interest rate (most often the LIBOR). A company will typically use interest
rate swaps to limit, or manage, its exposure to fluctuations in interest rates, or
to obtain a marginally lower interest rate than it would have been able to get
without the swap.
34
(v) Credit Derivatives - Privately held negotiable bilateral contracts that
allow users to manage their exposure to credit risk. Credit derivatives are financial assets
like forward contracts, swaps, and options for which the price is driven by the credit risk
of economic agents (private investors or governments).
For example, a bank concerned that one of its customers may not be able to repay a loan
can protect itself against loss by transferring the credit risk to another party while keeping
the loan on its books.

The main use of derivatives is to reduce risk for one party.the diverse range of potential
underlying assets and pay-off alternatives leads to a huge range of derivatives contracts
available to be traded in the market.
The Derivative Market can be classified as Exchange Traded Derivatives Market and
Over the Counter Derivative Market.

35
 PROJECT
FINANCING

36
 PRESENTATION AND ANALYSIS
OF DATA
Tata Metaliks Ltd is now on their way of diversifying their business.They have come up
with a project which they are planning to start from the financial year 2008-2009.This is
going to extend till the financial year 2015-2016.To have a good and successful project,
Tata Metaliks has to develop a good project management plan.For this they have to
follow the project development stages and plan accordingly.

Regardless of the methodology used project development stages will have some major
stages as shown in the diagram.

Fig : Project development stages

A. Initiation
The initiation stage determines the nature and scope of the development. If this stage is
not performed well, it is unlikely that the project will be successful in meeting the
business’s needs. The key project controls needed here are an understanding of the
business environment and making sure that all necessary controls are incorporated into
the project. Any deficiencies should be reported and a recommendation should be made
to fix them.
The initiation stage should include a cohesive plan that encompasses the following areas:
 Study analyzing the business needs in measurable goals.
 Review of the current operations.
 Conceptual design of the operation of the final product.
 Equipment requirement.
 Financial analysis of the costs and benefits including a budget.
 Select stake holders, including users, and support personnel for the
project.
 Project charter including costs, tasks, deliverables, and schedule.
37
 After initiating through the following areas Tata Metaliks have come up with the cash
flow chart of the project, which they are planning to implement.The detailed cash flow of
each financial year(for the respective plants) is given in annexure 1.

450
407
387
400 375

350

300

225
Years

250

200
150 150
150
90
100

50

-
1 2 3 4 5 6 7
Cash Flow

Fig : Financial projection of Tata Metaliks for the next 7 financial years.

The two ongoing plants, one in Redi and one in Karnataka is being diversified with the
upcoming project to be more productive in nature.Tata Metaliks is planning to extend its
activities in Karnataka region and so its planning to invest in Karnataka plant also.The
reseach division after taking the initiative has to go through the entire project.

To see the detailed cash flow of the project management plan see the annexure 1 on page

B. Planning and design

After the initiation stage, the system is designed. Occasionally, a small prototype of the
final product is built and tested. Testing is generally performed by a combination of
testers and end users, and can occur after the prototype is built or concurrently. Controls
should be in place that ensure that the final product will meet the specifications of the
project charter. The results of the design stage should include a product design that:
 Satisfies the project sponsor, end user, and business requirements.
 Functions as it was intended.
 Can be produced within quality standards.
38
  Can be produced within time and budget constraints.

So after the initiation stage Tata Metaliks will plan for the project to be carried on. The
total project will cost the company Rs. 1,784 for the seven years with cash flows in the
individual years. Tata Metaliks is planning to finance the project with its own resources
and with the aid of the financial instruments in the commercial market.
Tata Metaliks plans to raise the capital for its own project financing. In such a situation,it
may issue a part or the whole of its unissued share capital.The best possible way to
finance the huge amount needed for the project is from the capital market.In the domestic
capital market the company can raise the capital for project financing by issuing right
shares to the existing shareholders.By issuing right shares to the existing shareholder the
company can increase the paid-up capital of the company and finance the project that
they are planning.
The amount to be generated from the issue of rights shares or the proportion of rights
issue to the existing issue has to be decided by the company after planning and designing
various methodologies.

2007
SHARE CAPITAL
(Rupees in Lacs)

Authorised :
4,00,00,000 Ordinary Shares of Rs. 10 each 4,000.00

Issued, Subscribed and Paid - Up

2,52,88,000 Ordinary Shares of Rs. 10 each 2,528.80

Remaining amount can be further

issued for rights share 1,472

Fig : Calculation of Capital which can be raised by rights issue

So we can see that Rs. 1472 lacs can be raised by further issue of capital and after that the
proportion to which the rights shares will be issued in relation to the existing shares has
to be calculated.The ratio of existing shares to right shares has to be taken i.e (2528.8 :
1472.00) and this after calculation comes down to 2:1.Tata Metaliks can issue 1 rights
share for every 2 existing shares to the shareholders holding the shares before or on the
record date.
Now that a part of the project has been planned and designed to be financed by the help
of the capital market instrument,so the remaining part has to be planned to be finance
also.
(Rs. In Lacs)
Project Cost - 1,784
Rights Issue - 1,472
Remaining to be raised
by finance - 312

39
This remaining amount needed for the project can be raised by the debt market by using
the instrument term loan as it is the best method to finance a long term project
expenditure.Tata Metaliks has to give application for the term loan to the various banks
for getting the cheapest interest rate and a good payment structure.

C. Executing
Executing consists of the processes used to complete the work defined in the project
management plan to accomplish the project's requirements. Execution process involves
coordinating people and resources, as well as integrating and performing the activities of
the project in accordance with the project management plan. The deliverables are
produced as outputs from the processes performed as defined in the project management
plan.

From the above project management plan and design we can see the major source of
finance is by issuing rights share.Tata Metaliks has to intergrate and perform lots of
activities for rights issue.

A consent of the existing shareholders who have the pre-emptive right to purchase the
additional shares of the company contemplated to issue under the provisions of Sec81 of
The Companies Act, 1956.Under the provisions of the Act, when shares are offered to the
existing shareholders it is called the Right issue.The issue of right shares require the
following norms to be fulfilled :

1. Compliance under Section 81 of the Companies Act, 1956.

2. Approval of Financial Institutions for Right issue.
3. Compliance under FERA,if applicable to the subject company.
4. Compliance of the Central Government/SEBI guidelines issued from time to
time.
5. Compliance of the Stock Exchange requirements.

Some of the above compliance are precisely narrated below :

(1) Compliances under the Companies Act,1956

(2) Approval of financial institutions for rights issue : Where the company has availed of
term loans from financial institutions/banks,it is required to obtain their prior approval for
making the rights issue in terms of the loan agreement entered into with them.

(3) Compliance under FERA,if applicable to the subject company : For FERA companies
RBI permission is required for issuing right shares to non-residents vide Section 19(i)(d)
or to any foreigners(whether resident or non-resident)or to any company with more than
40 percent non-resident interest.

(4) SEBI Guidelines on Rights Issue :

40
 (a) Object : The Guidelines on Rights Issue will enable companies listed on a
recognized stock exchange to raise capital by issuing securities to its
shareholders on a right basis, with or without the right
renunciationwithout being required to submit the letter of offer for vetting
or to obtain an acknowledgement card from SEBI in respect of the said
rights issue.
(b) Applicability of the Guidelines : The Guidelines will be applicable to all
rights issue to be made by companies listed on a recognised stock
exchange after 1st July,1995.However guidelines will not be applicable to
composite issues,i.e., on issue of securities on a right basis made either
simultaneously or preceded or followed by an issue of securities to public
within a period of 3 months before or after the closure of rights issue as
the case maybe.
(c) Vetting of offer documents : Rghts issue which are not accompanied by
public issues 3 months prior or subsequent to the days of the rights issue
will not be required to be vetted by SEBI.
(d) Prohibition of rights issue over Rs.50 lakhs unless guidelines are complied
with.A listed company shal not make a rights issue ,where the aggregate
value of the securities ,including premium,if any exceeds Rs.50
lakhs,unless a category merchant broker, holding a valid certificate of
registration issued by SEBI has been appointed to manage the issue and
has submitted to the offer document to SEBI.
(e) Duty of Merchant Broker :It shall be the duty of the merchant
broker,acting as the lead manager to ensure that the letter of offer provides
a true and correct view of the state of affairs of the company ahich are
adequate for the investors to arrive at well-informed decision.
The merchant broker shall,however,submit the draft of the letter of offer to
SEBI six weeks befopre the issue is scheduled to after for subscription,if
any suggested by SEBI,within 3 weeks of receipt of such draft,shall be
incorporated/complied with by the merchant broker before filing a copy of
the letter of offer.
A copy of the letter of offer shall be submitted by the merchant broker yo
SEBI 2 weeks before the issue opens for subscription.
(f) All listed configures desirous of making rights issue shallvariably issue an
advertisement prominently is not less than 2 All India newspapers about
the details of right offer.
(g) Shareholders who have neither received the original composite
application forms nor in a position to obtain duplicate forms,any make an
application to subscribe to the rights on a plain paper.
(h) No preferential allotment may be made along with any right issue.If the
issue company desires to do so,they may do so independent of rights issue
by the complying with the provisions of the Companies Act,1956.
(i) Rights issue should not be kept open for more than 60 days.

(5) Compliance with stock exchange requirements : A listed company intending to make
rights issue is required to comply with the following requirements as contained in clause
23 of the listing agreement :

41
(i) unless shareholders in General Meeting decide otherwise to lose the
transfer books at such a date or in such a manner as is suitable in the settlement of
transactions in consultation with the exchange.

(ii) To make such issue or offers in a form to be approved by the exchange

and forward supply of the renunciation forms promptly to the exchange.

(iii)To issue where necessary,coupons or fractional certificates or provide

for the payment to the equivalent value in cash as the compny’s General
Meeting or as the Exchange decides.

(iv) The minimum time for which the rights issue is to be kept open is not
stipulated.As per the listing requirements with the stock exchange,rights
issue are to be kept open for at least 4 weeks although a minimum time of 2
weeks has been stipulated under section 81 of the Companies Act.

(v) To issue letters of allotment or letters of right within 6 weeks of the

record date or date of reopening of transfer books after their closure for the
purpose of making a bonus or rights issue and to issue allotment letters or
certificates within 6 weeks of the last date fixed by the company for
submission of list of renunciation or application for new securities.

Steps to be taken by a company in respect of issue further shares :-

(a) Check whether the rights issue is within the authorised share capital of
company.
(b) In case of a listed company,notify the stock exchange concerned the date of
Board Meeting at which the rights issue is proposed to be considered.
(c) rights issue and public issues should not exceed 30 days.Therefore if the
company has made a simultaneous issue of public and rights share,it should
ensure that the gap between the closure dates of these two does not exceed 30
days.
(d) As per the SEBI guidelines for rights issue of listed companies exceeding
Rs.50 lakhs, the appointment of merchant broker is mandatory. Therefore,
the steps should be taken to appoint a merchant broker where the issue
exceeds Rs.50 lakhs.Appointment of Underwriters, as per SEBI guidelines is
now optional.
(e) Convene the Board meeting and place before it the proposal for rights issue.

The Board should decide the following matters :

(i)Quantum of issue and the proportion of rights shares.

(ii) Whether the shares shall be issue at par or premium keeping in view of the SEBI
guidelines.The price is to be fixed by the Board of Directors in consultation with the lead
manager to the issue.
(iii) Alteration of share capital,if necessary, and offering shares to persons other than
existing holders of shares in terms of Section 81 (1A).
42
 (iv) Fixation of record date.
(v) Appointment of merchant bankers and underwriters.
(v) The letter of offer should conform to the disclosures prescribed in form 2A under Section
56(3) of the Companies Act (memorandum containing the salient features of the
prospectus). Full justification and parameters used for issue price should clearly be
mentioned in the letter of offer.

Immediately after the Board Meeting notify the concerned Stock Exchanges about
particulars of Board’s decision.
(f) As per the SEBI guidelines,the gap between the closure dates of
(g) Send the draft letter of offer to SEBI for vetting. As stipulated by SEBI
guidelines, the lead managers is responsible for obtaining SEBI clearance to
the letter of offer before approaching Stock Exchanges(s) for fixing the
record date for the proposed issue.
(h) If the issue does not require the appointment of lead managers (in case of
rights issue not exceeding Rs.50 lakhs) a vopy of letter of offer is to be
forwarded to SEBI for its information.
(i) If it is proposed to offer shares to persons other than the shareholders of the
company, a General Meeting has to be convened and a resolution passed for
the purpose in terms of Section 81 (1A) of the Companies Act.
(j) If rights shares are to be offered to NRIs, obtain RBI approval.
(k) Forward 6 sets of letter of offer to concerned Stock Exchange(s)
(l) Despatch letter of offer to shareholders by registered post.
(m) Make arrangement with bankers for acceptance of share application forms.
(n) If the company does not receive 90 percent of the issue amount including
accepted devolvement from underwriters within 120 days from the date of
opening of the issue,the amount of subscription received is required to be
refunded.
(o) Prepare a scheme of allotment in consultation with Stock Exchange(s)
(p) Convene Board Meeting and make allotment of shares .
(q) File return of allotment in Form 2 with Registrar of Companies within 30
days of allotment.
(r) Within 45 days of closure of rights issue, a report in the prescribed form
along with the compliance certificate from statutory auditor/practicing
chartered accountant/company secretary in practice is to be forwarded by the
lead managers to SEBI.

For the term loan Tata Metaliks has to screen various banking institutions and their
interest rates.After undergoing the research work Tata Metaliks has decide to take the
term loan from State Bank Of India at the interest rate of 10.15 % for period of 7 years in
which the first two years they are only going to pay the interest amount on the loan taken.
Tata Metaliks has to apply to the bank with the project proposal and the documents.Tata
Metaliks has considered to give fixed assets of Redi Plants as a security for taking the
term loan.The bank after scrutinizing the apllication and verifying the documents and
checking with the company upcoming project proposal will consider the decision of
granting loan to Tata Metaliks.

43
 D. Monitoring and Controlling
Monitoring and Controlling consists of those processes performed to observe project
execution so that potential problems can be identified in a timely manner and corrective
action can be taken, when necessary, to control the execution of the project. The key
benefit is that project performance is observed and measured regularly to identify
variances from the project management plan.

Monitoring and Controlling cycle includes:

 Measuring the ongoing project activities (where we are);

 Monitoring the project variables (cost, effort,) against the project
management plan and the project performance baseline (where we should
be);
 Identify corrective actions to properly address issues and risks (How can
we get on track again);
 Influencing the factors that could circumvent integrated change control so
only approved changes are implemented
In multi-phase projects, the Monitoring and Controlling process also provides feedback
between project phases, in order to implement corrective or preventive actions to bring
the project into compliance with the project management plan.

Project Maintenance is an ongoing process, and it includes:

 Continuing support of end users

 Correction of errors
 Updates of the software over time
 In this stage, auditors should pay attention to how effectively and quickly
user problems are resolved.

In this stage Tata Metaliks will monitor and control the activities that it had planned for
the project management.To raise further capital by issuing rights share to the existing
sharerholders Tata Meatliks has to see the volatility of the stock in the market.It has to
calculate the beta which measures how much a company’s share price moves against the
market as the whole.Beta represents risk,defined as the relative volatility of a stock’s
returns to those of the market.

The Stock price of Tata Metaliks is given in the table in annexure 2 with the calculated
returns on the stock price and S & P Nifty

After the returns have been calculated for the following months of the S & P Nifty and
Stock Price, we are going to plot the data on the graph and by linear equation we will
calculate the beta. The graph is in the next page.

44
 C AL C U L AT ION O F B E T A

0.2

0.15

y = 0.8743x + 0.0017
R2 = 0.243
0.1

0.05

0
STOCK PRICE

-0.1 -0.08 -0.06 -0.04 -0.02 0 0.02 0.04 0.06 0.08

-0.05

-0.1

-0.15

-0.2

-0.25

S & P NIFTY

45
Interpretation - From the above plotted graph we can see that the beta for this stock is
0.8743 in the regression.This beta represents that the stock moves in a way similar to the
market, but is less volatile, and the R-squared is 0.243, which indicates that the variance
of the stock returns are highly related to the variance of the S & P Nifty returns.So the
beta has helped Tata Metaliks to know the stocks volatility in the stock market.

E. Closing
Closing includes the formal acceptance of the project and the ending thereof.
Administrative activities include the archiving of the files and documenting lessons
learned. Closing phase consist of two parts:
Close project: to finalize all activities across all of the process groups to formally close
the project or a project phase
Contract closure: necessary for completing and settling each contract, including the
resolution of any open items, and closing each contract applicable to the project or a
project phase.

In this stage Tata Metaliks after planning and monitoring all the activities will now
present all the documents before the Board of Directors to get their approval in the Board
meeting.In this meeting the Board of Directors will go through the project management
plan.After scrutinising the plan, if everything falls into place, then they will approve the
plan and implement the project.For implementation Tata Metaliks will have to perform
46
and intergrate a lot of activities like filing aaplications to the SEBI for further issue of
shares and sending this information with the help of media to the existing
shareholders.Tata Metaliks also has to perform a lots of administrative duties in relation
to the successful closure of this project.

Suggestions and Conclusions

As because the project financing involves both equity and debt capital financing, so we
need to calculate the weighted average cost of capital for the firm.

(Rs. In Crore)
The Market Value of Debt - 90
The Market value of Equity - 428
The Cost of Debt - 9.5%
The Cost of Equity - 21.68%
The Corporate Tax Rate - 33.99%

The Weighted Average Cost of Capital for the company is

90 : 428*9.5%*(1-33.99%)
+ 428 : 90*21.68%

19.5 % is the weighted average cost of capital of the firm.

47
 Here,the market value of debt,the cost of equity and the corporate tax rate is taken from
the books of account.The estimated cost of debt is taken by adding long term bond rate i.e
8% with the estimated default spread i.e 1.5%,hence the output gives 9.5%.The market
value of equity we get by multiplying the number of shares outstanding i.e Rs.2.53 Crore
and the market price per share i.e Rs.169(average stock price from Bombay Stock
Exchange).

After viewing the entire project management plan I came to a conclusion that this
upcoming project will help Tata Metaliks diversify its business activities and touch new
horizons.The proposal of reinvesting and expanding its units in Kharagpur and Redi plant
will fetch more revenue for the company in the form of more production.The company is
going to export its large production of foundry grade pig iron and the by-products to the
other countries to earn huge revenues.

To expand its activities at the various plants the company need huge financing which it
shall get from the capital market in the procedure described in the previous section.I have
suggested capital market instrument as the best possible way of financing the project
strategy of Tata Metaliks after taking in consideration the other types of financial
markets.In the previous section the I have given the whole structure for issuing rights
share and the method of taking the loan.

Annexure

Annexure 1

Y-1 Y-2 Y-3 Y-4 Y-5 Y-6 Y-7

Items of Capital Addition (Rs.Cr.)
08-09 09-10 10-11 11-12 12-13 13-14 14-15 Total
KGP PLANT
Sinter Plant 25 40 - - - - - 65
Steel Plant 20 125 200 105 - - - 450
Expansion of Housing colony 1 3 2 - - - - 6
Coal Dust Injection 3 8 5 16
New Oxygen Plant - 2 4 - - - - 6
Foundry 25 50 - - - - - 75

48
REDI PLANT -
Power Plant 7 27 6 40
Sinter Plant - 30 10 - - - - 40
Foundry 20 43 25 - - 88
Jetty [ BOO basis] -
Mining 3 2 5 2 12
KARNATAKA PLANT -
Steel Plant (Phase - I) 6 100 130 100 - - - 336
Steel Plant (Phase -II) 25 125 150 300
Steel Plant (Phase - III) 50 150 150 350
1,78
Total 90 387 407 375 225 150 150 4

Financial projection of TML’s project

Annexure 2

Table showing the S & P Nifty price and Stock Price and the
calculated returns for the following financial year 2007-08

STOCK S & P NIFTYs STOCK PRICE

MONTH S & P NIFTY
PRICE RETURN

APRIL 3633.6 81.85

2007 3690.65 84.05 0.015700683 0.026878436
3733.25 84.1 0.011542682 0.000594884
3752 86.8 0.005022434 0.032104637
3843.5 91.6 0.024386994 0.055299539
3848.15 94.25 0.001209835 0.028930131
3862.65 100.4 0.003768044 0.065251989
3829.85 103 -0.00849158 0.025896414
3917.35 106.95 0.022846848 0.038349515
4013.35 109.4 0.024506363 0.022907901
3984.95 106.1 -0.007076383 -0.030164534

49
 4011.6 105.85 0.006687662 -0.002356268
3997.65 104.75 -0.003477415 -0.010392064
4083.55 105.35 0.021487624 0.005727924
4085.1 105.15 0.000379572 -0.001898434
4141.8 105.25 0.013879709 0.000951022
4167.3 115.45 0.006156743 0.096912114
4177.85 117.6 0.002531615 0.01862278
4083.5 117.55 -0.022583386 -0.00042517
4087.9 119.8 0.001077507 0.019140791
MAY 4150.85 122 0.015399105 0.01836394
2007 4117.35 129.9 -0.008070636 0.064754098
4111.15 120.95 -0.001505823 -0.068899153
4077 118 -0.008306678 -0.024390244
4079.3 116.65 0.00056414 -0.011440678
4066.8 116.4 -0.003064251 -0.002143163
4076.65 118.1 0.002422052 0.014604811
4134.3 119.45 0.014141513 0.011430991
4120.3 124.85 -0.003386305 0.0452072
4170.95 129.45 0.012292794 0.036844213
4219.55 130.6 0.011652022 0.008883739
4214.5 127.85 -0.00119681 -0.021056662
4260.9 129.65 0.01100961 0.014078999
4278.1 130.75 0.004036706 0.008484381
4246.2 130.5 -0.007456581 -0.001912046
4204.9 128.65 -0.009726344 -0.014176245
4248.15 128.45 0.010285619 -0.001554606
4256.55 130.05 0.001977331 0.012456209
4293.25 131.1 0.008622006 0.008073818
4249.65 132.5 -0.010155477 0.010678871
4295.8 132 0.010859718 -0.003773585
JUNE 4297.05 132.6 0.000290982 0.004545455
2007 4267.05 133.95 -0.006981534 0.010180995
4284.65 132.05 0.004124629 -0.014184397
4198.25 129.65 -0.020165008 -0.018174934
4179.5 129.8 -0.004466147 0.001156961
4145 129.65 -0.008254576 -0.001155624
4145.6 130.2 0.000144753 0.004242191
4155.2 130.9 0.002315708 0.005376344
4113.05 130.65 -0.010143916 -0.001909855
4170 123.45 0.013846173 -0.05510907
4171.45 121.85 0.000347722 -0.012960713
4147.1 120.45 -0.005837299 -0.011489536
4214.3 120.8 0.016204094 0.00290577
4248.65 125.15 0.00815082 0.036009934

50
 4267.2 126 0.004366093 0.00679185
4252.05 126.9 -0.003550337 0.007142857
4259.4 127.15 0.001728578 0.001970055
4285.7 128.45 0.006174579 0.010224145
4263.95 127.15 -0.005075017 -0.01012067
4282 128 0.004233164 0.006685018
4318.3 127.1 0.008477347 -0.00703125
JULY 4313.75 126.15 -0.001053655 -0.00747443
2007 4357.55 126.9 0.010153579 0.005945303
4359.3 126 0.000401602 -0.007092199
4353.95 124.7 -0.001227261 -0.01031746
4384.85 127.1 0.007097004 0.019246191
4419.4 130 0.007879403 0.02281668
4406.05 132.15 -0.003020772 0.016538462
4387.15 141.1 -0.004289556 0.067726069
4446.15 147.95 0.013448366 0.04854713
4504.55 142.6 0.013134959 -0.036160865
4512.15 140.85 0.001687183 -0.01227209
4496.75 137.35 -0.003413007 -0.02484913
4499.55 134.75 0.000622672 -0.018929742
4562.1 133.55 0.01390139 -0.00890538
4566.05 136.65 0.000865829 0.02321228
4619.35 141.05 0.011673109 0.032199049
4620.75 138.95 0.000303073 -0.014888337
4588.7 138.9 -0.006936103 -0.000359842
4619.8 137.75 0.006777519 -0.008279338
4445.2 135.45 -0.037793844 -0.016696915
4440.05 134.35 -0.001158553 -0.008121078
4528.85 135 0.019999775 0.004838109
AUGUST 4345.85 130.4 -0.040407609 -0.034074074
2007 4356.35 130.15 0.002416098 -0.001917178
4401.55 132.05 0.010375659 0.01459854
4339.5 129.9 -0.014097307 -0.016281711
4356.35 129.75 0.003882936 -0.001154734
4462.1 133.45 0.024274909 0.028516378
4403.2 131.9 -0.013200063 -0.011614837
4333.35 131.3 -0.015863463 -0.004548901
4373.65 132.5 0.009299964 0.009139375
4370.2 135.15 -0.000788815 0.02
4178.6 131.6 -0.043842387 -0.026267111
4108.05 130.5 -0.016883645 -0.008358663
4209.05 133.05 0.024585874 0.01954023
4074.9 130.8 -0.0318718 -0.016910936
4153.15 131.7 0.019202925 0.006880734

51
 4114.95 130.3 -0.009197838 -0.01063022
4190.15 130.55 0.018274827 0.001918649
4302.6 134 0.026836748 0.026426656
4320.7 138.8 0.004206759 0.035820896
4359.3 142.25 0.008933738 0.024855908
4412.3 142.3 0.012157915 0.000351494
4464 143.85 0.011717245 0.010892481
SEPTEM
4474.75 145.75 0.002408154 0.013208203
BER
2007 4474.75 144.75 0 -0.006861063
4475.85 146.8 0.000245824 0.014162349
4518.6 148.95 0.009551258 0.014645777
4509.5 144.7 -0.002013898 -0.028533065
4507.85 146.8 -0.000365894 0.014512785
4497.05 150.05 -0.002395821 0.022138965
4496.85 149.95 -4.44736E-05 -0.000666445
4528.95 151.8 0.00713833 0.012337446
4518 150.8 -0.002417779 -0.006587615
4494.65 152.45 -0.005168216 0.010941645
4546.2 152.1 0.011469191 -0.002295835
4732.35 153.15 0.040946285 0.006903353
4747.55 152.05 0.003211935 -0.007182501
4837.55 152.25 0.018957146 0.001315357
4932.2 153.25 0.019565689 0.006568144
4938.85 151.1 0.001348283 -0.014029364
4940.5 155.5 0.000334086 0.029119788
5000.55 149.95 0.01215464 -0.035691318
5021.35 148.65 0.004159542 -0.008669557
OCTOBE
5068.95 156.8 0.009479522 0.054826774
R
2007 5210.8 155.6 0.027984099 -0.007653061
5208.65 155.55 -0.000412605 -0.000321337
5185.85 177.45 -0.004377334 0.140790743
5085.1 168.25 -0.019427866 -0.05184559
5327.25 177.8 0.047619516 0.056760773
5441.45 180.3 0.021436952 0.014060742
5524.85 178.5 0.015326797 -0.009983361
5428.25 179.55 -0.017484638 0.005882353
5670.4 168.05 0.04460922 -0.064049011
5668.05 165.7 -0.000414433 -0.013983933
5559.3 164.85 -0.019186493 -0.005129753
5351 150.85 -0.037468746 -0.08492569
5215.3 149.55 -0.025359746 -0.008617832
5184 146.8 -0.006001572 -0.018388499

52
 5473.7 149.65 0.055883488 0.019414169
5496.15 149.65 0.00410143 0
5568.95 158.05 0.013245636 0.056130972
5702.3 165.75 0.023945268 0.04871876
5905.9 169.7 0.035704891 0.023831071
5868.75 164.05 -0.00629032 -0.033294048
5900.65 163.05 0.00543557 -0.006095703
NOVEMB
5866.45 156.3 -0.005795972 -0.041398344
ER
2007 5938.4 158.25 0.012264658 0.012476008
5847.3 155 -0.015340833 -0.020537125
5786.5 154.2 -0.010397961 -0.00516129
5782.35 152.7 -0.000717187 -0.009727626
5698.75 149.65 -0.01445779 -0.019973805
5663.25 151.5 -0.006229436 0.012362178
5617.1 150 -0.008149031 -0.00990099
5695.4 148.95 0.013939577 -0.007
5937.9 150.9 0.042578221 0.013091641
5912.1 160.7 -0.00434497 0.064943671
5906.85 160.95 -0.000888009 0.001555694
5907.65 164.25 0.000135436 0.020503262
5780.9 163.55 -0.021455232 -0.004261796
5561.05 155.15 -0.03803041 -0.05136044
5519.35 149.85 -0.007498584 -0.03416049
5608.6 154.95 0.016170382 0.034034034
5731.7 156.9 0.021948436 0.012584705
5698.15 155.05 -0.005853412 -0.01179095
5617.55 155.8 -0.014144942 0.004837149
5634.6 155.25 0.003035131 -0.003530167
5762.75 155.45 0.022743407 0.001288245
DECEMB
5865 158.75 0.017743265 0.021228691
ER
2007 5858.35 160.55 -0.001133845 0.011338583
5940 168.1 0.013937371 0.047025849
5954.7 167 0.002474747 -0.006543724
5974.3 164.55 0.003291518 -0.014670659
5960.6 164.45 -0.002293156 -0.000607718
6097.25 165.15 0.022925544 0.004256613
6159.3 172.55 0.010176719 0.044807751
6058.1 170.5 -0.016430439 -0.011880614
6047.7 171 -0.00171671 0.002932551
5777 167.7 -0.044760818 -0.019298246
5742.3 163.7 -0.006006578 -0.023852117
5751.15 163.35 0.001541194 -0.002138057

53
 5766.5 156.9 0.002669031 -0.039485767
5985.1 162.65 0.03790861 0.036647546
6070.75 172.85 0.014310538 0.062711343
6081.5 181.3 0.001770786 0.048886318
6079.7 195.95 -0.00029598 0.080805295
6138.6 208.35 0.009687978 0.063281449
JANUARY 6144.35 218.3 0.000936696 0.04775618
2008 6179.4 217.3 0.005704428 -0.004580852
6178.55 208.45 -0.000137554 -0.040727105
6274.3 207.2 0.015497164 -0.005996642
6279.1 209.2 0.000765026 0.00965251
6287.85 200.8 0.001393512 -0.040152964
6272 205 -0.002520734 0.020916335
6156.95 192.5 -0.018343431 -0.06097561
6200.1 188.1 0.00700834 -0.022857143
6206.8 195.6 0.001080628 0.039872408
6074.25 196.8 -0.02135561 0.006134969
5935.75 176.8 -0.022801169 -0.101626016
5913.2 195.25 -0.003799014 0.104355204
5705.3 166.25 -0.035158628 -0.148527529
5208.8 134.45 -0.087024346 -0.191278195
4899.3 128.75 -0.059418676 -0.042394942
5203.4 140.2 0.062070092 0.088932039
5033.45 139.2 -0.032661337 -0.007132668
5383.35 152.36 0.069514945 0.09454023
5274.1 157.7 -0.020294055 0.035048569
5280.8 162.55 0.001270359 0.030754597
5167.6 173.8 -0.021436146 0.069209474
5137.45 179.95 -0.00583443 0.035385501
FEBUAR
5317.25 184.25 0.034997908 0.023895527
Y
2008 5463.5 184.6 0.027504819 0.001899593
5483.9 176.1 0.00373387 -0.046045504
5322.55 172.95 -0.029422491 -0.017887564
5133.25 181.65 -0.035565659 0.050303556
5120.35 175.3 -0.002513028 -0.034957336
4857 165.1 -0.051432031 -0.058185967
4838.25 156.2 -0.003860408 -0.053906723
4929.45 159.05 0.018849791 0.018245839
5202 166.95 0.055290144 0.049669915
5302.9 169.95 0.019396386 0.017969452
5276.9 168.9 -0.004902978 -0.006178288
5280.8 165.6 0.00073907 -0.019538188
5154.45 163.8 -0.023926299 -0.010869565

54
 5191.8 164.35 0.007246166 0.003357753
5110.75 163.4 -0.015611156 -0.005780347
5200.2 159.5 0.017502324 -0.023867809
5270.05 162.05 0.013432176 0.015987461
5268.4 160.4 -0.00031309 -0.010182043
5285.1 163.15 0.003169843 0.017144638
5223.5 160.95 -0.011655409 -0.013484523
MARCH 4953 157.1 -0.051785201 -0.023920472
2008 4864.25 154.95 -0.017918433 -0.013685551
4921.4 150.4 0.011748985 -0.029364311
4771.6 144.2 -0.030438493 -0.041223404
4800.4 148.4 0.006035711 0.029126214
4865.9 152.65 0.013644696 0.028638814
4872 151.45 0.001253622 -0.00786112
4623.6 138.85 -0.050985222 -0.083195774
4745.8 141.3 0.026429622 0.017644941
4503.1 135.5 -0.051139955 -0.041047417
4533 133.4 0.00663987 -0.015498155
4573.95 130.4 0.009033752 -0.022488756
4609.85 126.45 0.007848796 -0.030291411
4877.5 131.8 0.058060457 0.042309213
4828.55 134.9 -0.010035879 0.023520486
4830.25 134.8 0.000352073 -0.00074129
4942 140.15 0.023135448 0.039688427
4734.5 139 -0.04198705 -0.008205494

Bibliography

The list of books from which reference has been taken are :-

1. Financial Management
By Prasanna Chandra

2. International Corporate Finance

-Indian Institute of Banking & Finance

3. Business and Corporate Law

Indian Institute of Chartered Accountants in India

4. Tata Metaliks
Seventeenth Annual Report

55
The list of Websites from which data and reference has been
taken are :-

1http://www.tatametaliks.com/

2. http://en.wikipedia.org/wiki/Main_Page

3. http://nseindia.com/

4. http://www.businessdictionary.com/

5. http://faculty.babson.edu/

6. http://www.investopedia.com

7. http://www.equitymaster.com

8. http://www.investorwords.com/

9. http://www.myiris.com

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