Professional Documents
Culture Documents
SESSION - 12
Shyam Ji Mehrotra
Shyam Ji Mehrotra
work
Sponsors need sophisticated legal and
financial advice to take off a project
Lead arrangers: Leading international banks
- Banks financing constitutes 47% of project
funding - top 10 bank arrangers are 40%
Lead managing underwriters:
Bond
market is increasing important source- top
three leading investment banks (underwriters)
manages 50% of funding
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Shyam Ji Mehrotra
Shyam Ji Mehrotra
Loan syndication
One bank can not fund large requirement from
Shyam Ji Mehrotra
Loan Consortium
Group of banking lending to a borrower generally
Shyam Ji Mehrotra
residual claim on
income and wealth of
the firm
Dividend paid is not
tax deductible
payment
Equity have indefinite
life
Equity holders enjoy
right to control the
affairs of the firm
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Shyam Ji Mehrotra
Shyam Ji Mehrotra
DER
prescribed by banks
Shyam Ji Mehrotra
FUNDING OPTIONS:
MEZZANINE FINANCING
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Shyam Ji Mehrotra
Shyam Ji Mehrotra
repayment terms,
Long term perspective
Cushion to both equity holders and senior debtor
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Shyam Ji Mehrotra
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CAPITAL STRUCTURE 2
100
75
0
Assets
100
Senior debt
75
Mezzanine
15
Equity
25
Equity
10
EBIT
10
EBIT
10
Interest on mezzanine
debt
1.5
2.5
Tax @50%
Tax @50%
PAT
1.2
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Shyam Ji Mehrotra
ROE
8%
PAT
1.2
Saturday, January 2, 2016
Financial Closure
Means all funds are tied up. Its take a
long time.
Suitable credit enhancement is done to
the satisfaction of lenders
Adequate underwriting arrangements are
made for market related offerings
Resource fullness of promoters is well
established
Concurrent
appraisal is initiated if
several lenders are involved
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Shyam Ji Mehrotra
RECAP
What is the role of lead arrangers in project
finance?
What are key factors for determining debt
equity ratio?
When a firm should use more equity?
When a company is formed, it must issue
share to promoters first Why?
Equity share holders bears the risk of ?
Why mezzanine financing is done?
Bonds are better option than term loans.
Why?
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Shyam Ji Mehrotra