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BMCL:TUNNEL OF DEBTS
Group 2Mr. Teerasak Soongloy st107910Mr. Gaurav Kundalia st107916Mr. Hariom Ghimire st107876Ms. Qurat Ul-Ain st107862Ms. Prakriti Paudel st107883Ms. Kirana Praimanee st107859Ms. U-thumporn H.A. st107892
SM80.9007 Project FinanceInstructor: Dr.Sundar Venkatesh
30th November 2009
AGENDA
♫ Project Overview and Structure
♫ Valuation – Sensitivity Analysis
♫ Refinancing
♫ Risk Management ♫ Conclusion and Lesson Learnt
PROJECT OVERVIEW&
STRUCTURE
BANGKOK METRO PUBLIC CO., LTD
Transportation Industry
MRT - OPERATION
MRT
BMCL: design,
manufacture, supply, install and test commission
M&E contract to Lincas & Siemens
(turnkey approach)
BMCL: Operation and maintenance
of MRT
5,417 m ฿ (27.5%)Equity
14,314 m ฿(72.5%)Debt
FINANCIAL STRUCTURE
64 %
6
19,731 m ฿
Metro Mall Development
Ltd.
Triads NetworksCo., Ltd.
100 % 56 %
PRE-IPO DEC 2005
1.Long Term Loans – tranche A 11,000(76.85%) (For procurement of the M&E Equipment)2. Long Term Loans – Tranche D 500 (3.49%)(For payment of additional project costs)3. Long Term Loans – Tranche D 650 (4.54%)(For payment of additional expenses from KTB,TMB,BAY and SCIB) 4. Other Liabilities 2,164(15.12%)(Construction and other payable)
Major shareholders
1. CH.Karnchang Plc ,Ltd. 40.26%2. Bangkok Expressway 18.89%3. Natural Park Plc ,Ltd. 18.75%4. Krung Thai Bank 9.56%5. TMB Bank 4.81% 6. Employees 3.88%7. Siam City Bank 2.30%8. Tokyu Construction co, Ltd 1.31%9. Others 0.25%
BMCL NetworkLtd.
FINANCIAL STRUCTUREMajor shareholders
1. MRTA25%
2. Public 23.07%
3. CH Karnchang Plc, Ltd 19.56%4. Natural Park Plc, Ltd
12.00%5. BECL
9.99%6. Krung Thai 3.94%7. TMB Bank Pcl, Ltd
2.00%8. siam City Bank Pcl, Ltd 0.96%9. Tokyu Construction
0.84%10. Others
0.16%11. Directors, Exe & Staff 2.49%
POST-IPO SEPT 2006
1.Long Term Loans – tranche A 10,560 (82.5%) (For procurement of the M&E Equipment)2 . Long Term Loans – shareholder 1,065 (8.3%)(CH.Karnchang Plc. ,Ltd)3. Other Liabilities 1,177 (9.2%)(Construction and other payable)
8,439 m ฿ (39.73%)Equity
12,802 m฿ (60.27%)Debt
64 %
21,241m ฿
Metro Mall Development
Ltd.
BMCL NetworkLtd.
Triads NetworksCo., Ltd.
70% 56 %
2006, balance of Tranche D Facility & Tranche E Facility paid in full (1,114.4 m฿).
• Investors become a part of company also risk sharing• Hence, repayment is not the obligation and cheaper debentures• Benefit from Share price• Transfer of skill and knowledge
+
PUBLIC LISTING
BMCL AND IPO
Expansion of Capacity 5 trains
To compensate for crash accident High cost, low revenue Debt Service Investment
Subsidiaries Metro Mall Development Limited BMCL Network Limited Traids Networks company Limited
PROJECT VALUATION
ASSUMPTIONS FOR VALUATION:
•The project is BOT, and concession period is 25 years begin from year 2004
•Fare rate is adjusted according to CPI -6% increase in very 2 year starting from 2010
•Passenger growth rate for existing line: 15% for year 2010-2013
•Passenger growth rate for expansion line: Data Source-BMCL
•Other Income is assumed to be 15% for this project which will compose from advertising service, Telecommunication services & retail space leases
•Selling and Administration expenses is 15% for existing line and 5% for expansion line with correspondent revenue
•The Maximum capacity is 1080000 Passenger per day
•The Interest rate for Tranche A loan is MLR +.25%, Tranche E loan and CH.K Loan is MLR + 0.5% respectively
ASSUMPTIONS FOR VALUATION:
•Salary and Wage is 15% of revenue fare box revenue
•Repair and Maintenance cost will increased by 1% each year after 2009
•Utility and Insurance cost are fixed-Historical income statement
•Cost of Commercial Development is 65% of it's revenue for whole project life
•Project Cost Amortization is apportion according to number of passenger
•The company will pay the rest of its interest(which was capitalize) when it has enough cash flow (repay in the year 2013 at once)
•Corporate Income tax-30%, Company has tax holiday for 8 years
•The company has 8 years tax holiday and loss carry forward to 5 Years, according to tax law of Thailand
•Revenue is apportion to MRTA according to contract
INCOME SOURCE
Fare box revenue-87%(The revenue come from the operation of train service in the form of Cash & Prepaid Card)
Commercial development revenue-13%(The revenue compose from advertising service, Telecommunication services & retail space leases)
EXPENSES
Cost of fare box
Salary, Wage & other employees benefitRepair and maintenance costUtilities costInsurance expensesSelling and administration expenses
Cost of Commercial Development
VALUATION: FCFE
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
(904.13)
(630.15)
(419.88)
(20.20)
(52.77)
4,160.41
(1,051.41)
1,130.01
2,085.70
2,434.64
2019 2020 2021 2022 2023 2024 2025
1,755.83
1,835.16
896.00
(104.53)
1,471.54
2,654.90
2,415.16
Amount in Bn BahtFree Cash Flow to Equity
2026 2027 2028 2029 2,657.35
2,535.16
3,038.63
2,908.98
BMCL will have positive FCFE only after year 2013
BMCL has to share revenue with MRTA from the year 2015, so that FCFE is negative
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
-2,000.00
-1,000.00
-
1,000.00
2,000.00
3,000.00
4,000.00
5,000.00
FCFE
FCFE
Year
Bil
lio
n B
t
DSCR TO LENDERS
Minimum required DSCR is (according to Concession) 1.2, which is not satisfied
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
-8.00
-4.00
-
4.00
8.00
12.00
16.00
20.00
24.00
28.00
32.00
36.00
DSCR
DSCR to Commercial Lender
DSCR to Share Holder
Minimum Requirement
Year
DS
CR
STOCK VALUATION-EXISTING CAPACITY
NPV $8,028,138.66
Outstanding Share 11,950,000.00
Share Value 0.67 Current Market Price
(As on 28/11/2009)0.73
In the current situation, we can’t recommend investors to buy the stock since it is over valued
STOCK VALUATION-IF BMCL INCREASE IT’S CAPACITY
Year No of Train
Value of Stock
Market Price Recommendation
2018 1 0.86 0.73
2018 2 1.02 0.73
2018 3 1.17 0.73
2019 4 1.32 0.73
2019 5 1.48 0.73
If BMCL announce future plan to buy more Trains, we recommend investors to buy the stock
STOCK VALUATION:-IF THE CONSTRUCTION IS EXPANDED
line delayed
The value of stock is very sensitive to the expansion plan, if it delayed the valuation will significantly change
1 2 3 -
0.10
0.20
0.30
0.40
0.50
0.60
Share Value
Price of Stock
Delayed Year
Bah
t
SCENARIO ANALYSIS
If fare changes
The share price of BMCL is highly sensitive to fare rate. If the fare increases the investment in BMCL will be attractive
-5% 0% 5% 10% 15% -
0.20
0.40
0.60
0.80
1.00
1.20
1.40
Value of Share
Share Price
Market Price
% Change in Fare
Bah
t
SCENARIO ANALYSIS
If BMCL do not share revenue with MRTA
BMCL stock price is attractive if it has not to share revenue to MRTA
Revenue Share with MRTA Revenue do not Share with MRTA0
0.5
1
1.5
2
2.5
3
Value of Share
Bah
t
REFINANCING
RESTRUCTURING IN 2008
2008 2012 20182013
Tranch ABaht 11000 mn
3.17% MLR + 0.25%
D:E = 1.7:1D:E = 2.7:1
REFINANCING OPTIONS (DSCR SENSITIVE)
Availability Cost Covenants
Debentures
Debt Restructuring
Debt Refinancing(New Banks)
Debt Refinancing(Old Banks)
Subordinate Debt
Bankruptcy
Weight Symbol
Not Imp.
Little Imp.
Imp.
Very Imp.
Most Imp.
Availability Cost Covenants
Equity Dilution
New Sponsor
Govt. Aid-MRT payment-Guarantee-Increase Price-Arrange Loan
REFINANCING OPTIONS (REPUTATION SENSITIVE)
Weight Symbol
Not Imp.
Little Imp.
Imp.
Very Imp.
Most Imp.
PROJECT RISK &
MITIGATION
PROJECT RISK DISCUSSION
• All the Projects are risky• In beginning we decide to accept /reject Project on the basis of Risk
Assessment• During the Operation phase many of the Risks are realized. At this stage
the Role of risk Mitigation strategies become obvious. • In one way it can be said that If the Risk Mitigation strategies are well
perceived & executed, can make the project less risky at the later stages especially after the Heavy Investments are made & Operations started.
• Thus the failure/success of a project can be attributed to the extent to which the appropriate Risk Mitigation strategies are identified & applied when such are needed timely.
• In this context we tried to develop Risk Mitigation Matrix, as follows:
1- Identification & Rating of Project Risks
2- Identification of appropriate Risk Mitigation strategies (RMS)
3- After careful observations/readings assign the ratings to RMS according to predetermined scale & multiply it with Respective Project Risks.
4- To get an idea how each risk Mitigation strategy is successful in coping the relative Risks
PROJECT RISK
Risk Factors Risk Mitigation
1. Economic risk
1. Risks relating to fare revenue2. Risks relating to fluctuation of
cost of fare3. Risks relating to revenue from
commercial development4. Inflation
1. Revenue sharing should be reviewed
2. Relaxation in fare price terms of concession agreement
2. Financial risk
1. Unavailability of funds2. Company reliance on the
financial support from its major shareholders
1. Government can help in renegotiation in restructuring
2. Government guarantee
3. Contractual and legal risk
1. Delay in solving contractual issues
2. Delay in solving disputes3. Change order negotiation
1. Involvement of Higher Government
PROJECT RISK
Risk Factors Risk Mitigation
4. Operational & Technical Risk
1. Company reliance on Siemens and Lincas for manufacture and maintenance of its M&E Equipment
2. High maintenance cost3. Subcontractors-related risks4. Equipment productivity5. Labor productivity
1. Qualified staff2. Fix as many operating risks as
possible to provide 3. Ensure strong penalty clauses
or cost sharing arrangements are included within contracts for technical services & time delays
5. Design & Physical risk
1. Inadequate specification2. Conflict of documents3. Difference in execution4. Design change5. Geological risk6. Construction material risk
1. Fully investigate the opportunities for staging the development to meet demand.
6. Foreign Exchange Risk
Risks from the interest rate and foreign exchange rate fluctuations
1. Applying appropriate Hedging strategy
Risk Factors Risk Mitigation
7. Construction risk 1. Delay Risk2. Lack of coordination risk
1. Research the strength of the construction co. manage a contract of this capacity and absorb cost overruns.
2. Subcontracts8. Political Risk 1. Risks relating to the
Concession Agreement and the govt supervision
2. Risks relating to the govt policy in the construction and operation of the mass transit railway system
1. Contractual arrangements
9. Safety and social risk
1. Accidents 2. Ecological constraints3. Damage to persons or property 4. Pollution and safety rules 5. Public consultancy
1- Obtain insurance where possible to protect against large-scale environmental damage
10. Force majeure risk
War , Act of God, Fire and Theft
1 - Obtain insurance where possible to protect against large-scale environmental damage
PROJECT RISK
The decision to go for IPO before debt restructuring seems to be rational since BMCL can raise money after IPO and because good reputation amongst investors
BMCL’s revenue is very sensitive to both fare and expansion line.
BMCL cannot serve the debt if there is no expansion.
The expansion part that will have significant effect on the existing line is Blue Line, Green Line and Red Line.
OVERALL ANALYSIS
CONCLUSION
In light of several possibilities, if BMCL want to service the debt they have to go for equity dilution, by issuing new stock, however according to the current situation, it is unlikely that it will get positive response from the investors.
The investors should invest in the company if the plans of future expansions are certain and the company commit to buy additional trains in future.
This company will need Government Aid in order to enhance the operations feasibility in future.
SOURCES
Primary Source:
Interview with MRTA, BMCL officers and Kim Eng Analysts.
Secondary Source:
http://www.bangkokmetro.co.th
http://www.mrta.co.th
http://www.bangkoktransport.net
http://marketdata.set.or.th
http://www.2bangkok.com/2bangkok/Subway/newsold.shtml
www.kimeng.co.th
www.bangkokpost.com
www.ryt9.com
SCENARIO ANALYSIS
If the Train Crash in the Year 2018
0% 50% 70% 80%0
0.10.20.30.40.50.60.70.8
If Train Crash in Year 2018Share Price
Valuation
Market Price
Revenue Decreased
Bah
t
Back up
Before
PRE & POST IPO STRUCTURE