Name Mohd MUJEEB

Email mohammedmujeeb9105@gmail.com

Smart Task No. 3

Project Topic Project Finance- Modelling and Analysis

Ques1: how a new venture is assessed to qualify as a project finance.

What are factors that need to be considered?
Solution:New ventures are being assessed in terms of many factors in order to
qualify as project finance. As the lenders always want to invest in a venture which is
capable of paying them off.New ventures are assessed in following ways to qualify
as project finance. These are the important factors that are needed to be considered
in order to assess a new venture-
1Calibre of business principlePrinciples are the primary sources of fuel for
business projects. Their Vision, energy and the effort they are willing to make, are
the factors that make or break projects
2.Business environment risks-Lenders make sure that your project is not
perceived to be subject to inordinate risk. The upcoming lifting of a tariff
barrier, a procedure that creates pollution or the fact that your business is situated
within a fragile sector of the economy may cause a lender to be overly
cautious. The Companyshould also be adequately covered by insurance that is
tailor to the nature of its activities.
3.Project credibility-If lenders or investors decide to put money in your project, its
because they hope the investment will pay off. They’ll make sure your provisions are
based on verifiable facts and are realistic.
4.Company’s ability to pay and financial structure-You’ll have to prove that the
company is able to meet all its financial obligations. The company’s financial
structure should therefore show a healthy balance between loans and assets.
5.Principal’s financial history-In lenders eyes, the future is largely predicted by
the past. It is more than likely that they will run a credit check on the business
principles to see if principles effectively met past financial obligations.
6.Security-Debt financing is usually secured against company assets, which could
be sufficient to allow lenders to cover their risk

Q Explain in detail the revenue model ( process of generating revenue) for Solar
PV Project, Residential Building, Manufacturing Unit and other PPP projects.
A revenue model is a framework for determining how a business will earn revenue. Revenue
models map out the value proposition of a business, how to price the value, and
how customers will pay for it.
Without a clear and well-defined revenue model, with a clear plan of how to generate
revenues, new businesses will more likely struggle due to costs which they will not be able to
sustain. By having a clear revenue model, a business can focus on a target audience, fund
development plans for a product or service, establish marketing plans, begin a line of credit
and raise capital.
The type of revenue model that is available to a firm depends, in large part, on the activities
the firm performs, and how it charges for those. Various models by which to generate
revenue include the following:
● Production Model
● Manufacturing Model
● Rental & Leasing Model
● Construction Model
● Advertising Model etc.

Solar energy power plants (both utility and rooftop scale) have seen tremendous amounts of
growth in the last few years. With such growth in conjunction with the country’s ambitious
target of 100 GW, the market is to achieve new heights. Revenue is generated by selling the
generated energy or savings are made by consuming the generated electricity. From a
consumers and/or investors perspective it is important that he chooses the right business
model to minimize his risks and maximise his returns. The Production Model is used in solar
energy plants.
When we talk about the residential building, the revenue is generated either by the rents or
the sales of the residential units. Both the Construction Model and the Rental model are
applicable in this case.
Manufacturing is the production of merchandise using labour, materials, and equipment,
resulting in finished goods. Revenue is generated by selling the finished goods. They may be
sold to other manufacturers for the production of more complex products (such as aircraft,
household appliances or automobiles), or sold to wholesalers, who in turn sell them to
retailers, who then sell them to end users and consumers. Manufacturers may market directly
to consumers, but generally do not, for the benefits of specialisation.

Ques3 What should be the additional points that need to be included in a

financial model, if the financing bank is from abroad and the debt is in US$ but
revenue is in INR ?
In the era of globalisation, cross-border transactions have become a part of routine business
operations for corporates and External Commercial Borrowing (ECB) is one of the most
common modes of financing such transactions. External Commercial Borrowing is an
instrument used in India that facilitates access to foreign money by Indian Corporations and
other private corporations or individuals. Globalisation has now opened various options for
raising capital but selecting the fund raising solution which is suitable for specific business
requirements can be
tricky and difficult task.
External debt Sometimes referred to as foreign debt, corporations, as well as governments,
can
procure external debt. In many cases external debt takes the form of a tied loan, which means
the
funds secured through the financing must be spent in the nation that is providing the
financing. For eg. The loan might allow one nation to buy resources it needs from the country
that provided the loan. External debt, particularly tied loans, might be set for specific
purposes that are defined by the borrower and lender. For example:- If a country needs to
build up its development infrastructure, it might leverage external debt as part of an
agreement to buy resources, such as the materials to construct power plants or any other in
underserved areas or for the purpose of urbanisation. So, in case there is an external debt
involved analyst with recommendation from the client need to ensure the procedure on what
basis the rate need to be quote, so that Foreign currency risk can be minimised and and risky
exposure such as transaction (monetary terms) or translation exposure (books of account) can
be minimised.
The complexity of implementing such projects on an international scale is not limited by the
legal peculiarities of creating an SPV and providing borrowed funds in different countries.
Multilateral contractual relations concluded by partners must reliably protect the interests of
creditors and guarantee funding for the project on the most favourable terms.
A wide range of PF contractual options allows the initiator to share risks with foreign
partners and ensures more efficient project implementation compared to traditional funding
methods.
The disadvantages of PF are associated with the complexity of the organisation due to the
increase in the number of participants in the scheme. PF is associated with higher transaction
costs, so the cost of borrowing is usually higher compared to other financial alternatives.
There is also an issue of fluctuation in the foreign exchange rate.