WEEKLY EXERCISE #2

Investment Banking Program 2023

Module 2 & 3

“Finance Fundamentals & Fixed Income”

ROLE PLAY SESSION

June 2023

Session by: Vivek Suman, CFA

Week Duration: 03/06/23-04/06/23

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Learning Objective:

 To understand the role and functions of a financial institution in the Financial System
by an infrastructure sector participant.
 To apply financial concepts and tools, to apply concept bond valuation, YTM, etc., to
a current real-world scenario.
 To develop critical thinking and problem-solving skills to advise a client – “Nabfid’s
Chairman KV Kamath & MD Rajkiran Rai” on a strategic decision.
 To enhance communication and presentation skills to deliver clear and convincing
recommendations.

Case Instructions:

 You should only use the information that was given to you in the class and during the
feedback session for this exercise. You don’t need to do any extra reading. The goal
of this exercise is to test your understanding and application of the concepts that
were taught in the session.
 Read the scenario carefully. Then, in your roles, discuss your ideas and opinions on
how the company can respond to the criticisms and enhance its corporate social
responsibility efforts.

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Case –National Bank for Financing Infrastructure Plans to Raise ₹30K Cr Via Long Term
Bond & Lend ₹4L Cr

Background

 Nabfid is a government-backed development financial institution that started

operations last year with Rs 20,000 crore capital and a Rs 5,000-crore grant from the
government.
 Nabfid has granted in-principal approvals to proposals of Rs 50,000 crore, and final
sanctions have crossed Rs 25,000 crore, with road and energy being the major
sectors.
 Nabfid is chaired by veteran banker KV Kamath, who headed ICICI during its DFI days.
And has appointed Mr Rajkiran Rai as Managing Director of the Bank.
 The infrastructure sector in India is expected to grow at a CAGR of 15% over the next
five years, driven by government initiatives and private investments.
 MD Rajkiran Rai has announced in month of June 2023, that the company plans to
create a subsidiary that will offer credit enhancement to infrastructure borrowers,
including urban bodies. It will use our equity capital of Rs 20,000 crore to lend up to
Rs 4 lakh crore by March 2026. We intend to raise Rs 30,000 crore this year through
long-term bonds.” He also said that the company has given in-principle approvals for
projects worth Rs 50,000 crore, and has sanctioned more than Rs 25,000 crore,
mainly in road and energy sectors.
 Drivers: Nabfid has a strong backing from the government, which enhances its
creditworthiness and reputation. Nabfid has a clear vision and strategy to lend to the
infrastructure sector, which has high growth potential and social impact. Nabfid has
access to low-cost funds from the government grant, which reduces its cost of
capital.
 Risks: Nabfid faces competition from other DFIs and banks that also lend to the
infrastructure sector. Nabfid may face regulatory or political uncertainties that could
affect its operations or profitability. Nabfid may face project delays or defaults from
its borrowers in the infrastructure sector, which could impair its asset quality and
cash flow."

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Action Mr RajKiran has taken to engage you as Investment Banker to execute this bond
issuance are:

 Hire you as an investment bank as an underwriter and advisor for the bond issuance.
 Prepare a prospectus that outlines Nabfid’s business model, financial performance,
growth prospects, risk factors, etc.
 Obtain regulatory approvals from SEBI and RBI for the bond issuance.
 Conduct roadshows and meetings with potential investors, such as insurance
companies, pension funds, sovereign wealth funds, etc., to market the bond.
 Price and allocate the bond according to market demand and supply conditions.

Day 1: In your role as an Investment Banker on the Nabfids Bond issuance, you will develop
recommendations for the following:

Formulate recommendations and action plan.

1. What is your final answer or solution to your client’s problem or question, provide
why Bond is more suitable instrument over Equity? Analyze the information and
data. What are the main drivers and risks that affect your client’s bond issuance?
What are the trade-offs and alternatives that your client has to consider?
2. Provide which kind of Bond and its features you believe is suitable for the same
Bond type:
Bond Tenure: Years
Feature:
You can use charts, tables, graphs, etc., to illustrate your recommendations. Your
recommendation is based on the reasons: List your reasons while answer the above
question.

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Day 2: In your role as an Investment Banker working on Nabfids Bonds, develop the Term
Sheet and Bond Valuation, assuming your recommendation is the following:

Recommendation "Based on our analysis, we recommend that Nabfid should issue a 10-year
bond with a coupon rate of 8%, which would raise Rs 30,000 crore. This would enable Nabfid
to achieve its lending target of Rs 4 lakh crore by March 2026 with an internal rate of return
(IRR) of 12%. Your recommendation is based on the reasons: List your reasons while answer
the above question.

Work as Investment Banker at Nabfid's Bank on the following two important Bond Floatation
tasks.

1. Prepare a term sheet highlighting feature for a proposed bond prospectus that needs
your input?
2. Create an excel sheet that values the above 10 years bond and reflects the range of
bond prices (NPV) and Yield To Maturity (YTM) in the term sheet?
You can use Standard Term sheet template for Bond floatation and Bond YTM &
Valuation Calculator attached

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