Project Finance & Term Loan

8/13/2019 Project Finance & Term Loan

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PROJECT FINANCE


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Raising of funds to finance an economically separablecapital investment project in which the providers of f unds lookprimarily to cash flow from the project to service the ir debtand provide returns on their equity Creation of Special Purpose VehicleTypes of Projects

Physical InfrastructureRoadsBuildingDam

AirportsPortsWater SupplyEnergy

Soft Infrastructure: Health , Education

PROJECT FINANCE


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DEMAND SUPPLY GAP

Annual investment needs in Urban Infrastructure aloneare about Rs. 400 billion* as against an availability of

Rs. 50 billion , (excluding new mass transit and township

development projects)High Cost of construction

Generally projects have returns over long period

No cash inflows during gestation period

Have Pre operative expenses also

Funds are kept for contingencies also


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SERVICE PROVISION OPTIONS

Infrastructure Services

Status Quo:Govt creates assets& provides services

Privatization:Private Sector

creates assets & provides services

Commercialization:Govt creates assets

& hands over toPvt Sector to

provide services

Public PrivatePartnership


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Small NumberOf Profitable

Projects

Build OperateTransfer

BOT

Larger NumberOf Marginally

ProfitableProjects

Govt. LeveragedPrivatisation

Unprofitable, ButImperative Projects

Budgetary Allocation

MaintenanceWorks

Dedicated Funds(Road Fund)

WAY FORWARD


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PROJECT FINANCING

Sponsor/ Corporate

Equity Funds

Financial Institutions

Multi-lateral Institutions

World Bank, IFC

Public Finance


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PROJECT FINANCE PROCESS

Revenue Collection

Project Implementation

Project Financing

Calculation of Viabilities

Bidding Process

Government Approvals

Identification of Project


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UNDERSTANDING VIABILITY OFPROJECTS

Managerial Viability: Managerial Competence

Technical Viability: Is it pos sible to build that project in the

given t ime & Cost

Financial & Economic Viability: The Cost Benefit analysis

Ratios like Debt Service Coverage Ratio

Cash Flow projections, mode of Financing etc.

NPV, IRR has to be calculated

Risk Calculation : Sensitivity Analysis, Scenario Building, Simulation


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Time Delays

Cost Overrun

Corruption

Unforeseen Risk

Huge Investment

Lack of Government Funds

User Unwilling to pay

BOTTLE NECKS IN PROJECT FINANCING


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PERT: Project Evaluation Review Technique

CPM: Critical Path Method, us ed for reduction in total time byreducing the longest chain of work

WAYS OF DEALING WITH TIME & COSTISSUES


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Term Loan: In case of term loan bank or f inancial ins t i tu t ion gives

general ly 3 -7 year loan for acquis i t ion of f ixed asset s

Deferred Payment Guarantee: Ins tead of taking term loan & paying interes t

to bank, company takes the asset on ins ta l lments / deferred payment . The

bank does credi t appraisal and t akes guarantee for the deferred payment .

Hire Purchase: I t i s a contractual ar rangement under which the owner

(Hire Vendor) le ts h is goods on hire to the hi rer on condi t ion of per iodic

insta l lment payment and ownership is t ransferred a t the payment of las t

ins ta l lment

LEASE FINANCE: A Lease is a t ransfer of a r ight to enjoy the proper t y a t a

pr ice or a rent . So ins tead of buying the asse t user ( lessee) uses the asse t

and pays lease renta ls to lessor.

OTHER FINANCING OPTIONS


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THANK YOU

Documents

Project Finance & Term Loan