September 16, 2010

MBPF 913 CLASS ASSIGNMENTS:

1. New Age Corp, which is an infrastructure developer and builder of power

plants, is planning to raise Rs. 2500 Crore for its proposed coal fired power
plant. It hired a reputed international financial consultant to evaluate the
best options for raising debt. The Consultant has suggested the following:
a. Rs. 1000 Crore of RTL from domestic banks at 11.5% per annum with
a tenor of 7 years. It will require quarterly repayments after the
completion of the plant which will take 36 months from loan closing.
No payments are due during the construction period but any accrued
interest will be capitalized.
b. Rs 550 Crore of zero coupon bonds from domestic investors with a
maturity of 10 years priced to provide an effective yield of 14% per
annum to the investors
c. Rs 300 crore thru NCD’s at 8.5% per annum in foreign currency loan
from investors in UK for 10 years with semiannual payments. Interest
only payments are required during the construction period of 36
months. Foreign currency hedging costs are expected to be 200 basis
points to the cost of the debt.

You, as the internal financial guru, are to evaluate these proposals and prepare a
summary for the CFO of your company. The report should include i) effective cost
to the borrower for each tranche of debt, ii) quarterly cash flow requirements
from start to end, iii) NPV (or PV) calculations for each tranche at the company’s
discount rate of 17%, and iv) your analysis of to calculate the issuing price of the
zero coupon bonds.

9/16/2010 Agarwal: Project Finance 1 of 1