©ramaiah University of Applied Sciences Faculty of Management and Commerce

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Faculty of Management and Commerce ©Ramaiah University of Applied Sciences

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Faculty of Management and Commerce ©. Ramaiah University of Applied Sciences
 Independent economic entities
 Completion without undue uncertainty
 Generate adequate revenues
 Significantly worth more on completion
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 Creation of separate
entity
 Equity Holding Pattern
 Non Recourse Debt
 Leverage
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 Contractual Structure
 SPV Way Forward
 Promoter Equity 15-30% (sponsors

contribution)
 The Risk Shield

› Non recourse
› Sans Recourse
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 Viability Gap Funding Mechanism
 Grant Can’t exceed 40% of project cost
 Positive grant
 Negative grant
› SPV is L&T Vadodara Bharuch Tollways Ltd
› Negative grant of Rs. 471 crore that would be paid to the
National Highways Authority of India (NHAI) by L&T.

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 Contractual Agreements
 Lenders Wisdom
 Legal advisor responsibility to advise

› Appropriate risk allocation
› Robust legal and structural
framework
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 Promoters
 Lenders
 Borrowers
 Equipment Providers
 EPC Contractors
 Fuel Supplier (Input Supplier)
 Consultants
 Product off takers as output buyers
 Insurance companies providing
cover
 Operations maintenance operators 8
 Type of project
 Recourse
 D/E Ratio
 Equity Funding
 Project Implementation Risk
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 Project Size
 Cost of Funding
 Third party Investment
 Separation of Cash Flows
 Degree of scrutiny
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 Public Private Participation
 Conceding Authority
 Concessionaire
 Concession Period
 Concession Agreement
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 BOT: Build Own transfer
 BOOT : Build Own operate transfer
 DFBOOT : Design finance Build Own

operate transfer
 BOO: Build own operate 12

 PPP Experience in INDIA
 And
 Viability Gap Funding (VGF
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 Huge Third Party Costs
 Time Consuming Process
 High Cost Project Debt
 Stringent Covenants
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 Developmental Phase
 Completion Phase
 Operation Phase
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 Risk To Lenders
 Reallocation of risks
 Highest upto Commercial Operations date
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 Equity investors
 Lenders
 Input Suppliers
 Output Buyers
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 Identification of risks
 Assessment of the possibilities
 Elimination of impact or quantification of risk
 Determination of level of risks
 Deciding acceptance level of risks
 Risk control measures
 Monitoring through approved process/mechanism
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 Avoidance
 Provision for contingency
 Prevention
 Reduction
 Transference
 Acceptance
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 Development Phase Risk
› Borne by promoters
› No risk to lenders
 Construction Phase Risk
 Operational Phase Risk

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 Joint venture agreement among promoters
 Elaborate project development agreement
 Environment clearances
 Equity IPO and strategic investors
 Loan against future cash flows
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 Approval of licenses
 Technology risks
 Experienced professional Services
 Turnkey EPC
 Fuel Supply And Transportation agreements
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 Lenders Risk
 Funding Risk
 Sponsoring Risk Mitigation through gearing
 Pre disbursement Conditions
 Grievances handling through Mutual
Considerations
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 Technology risks mitigation through EPC
contractors
 Contingency risks
 Equipment performance risks cover given by
manufacturers
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 Due Diligence
 Promoters, their capabilities, credit worthiness,
experience
 Project structure, time taken
 Technical feasibility
 Commercial analysis
 Infra Requirements
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 Legal and regulatory clearance
 Project cost
 Financing plan and strategy
 Risk analysis
 Risk mitigation proposals
 Financial Model
 Credit enhancement mechanism
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 Evaluation of investment decision
 Free cash Flow for assessing project

› Payback period
› NPV
› IRR
› ENPV
› Decision Tree Analysis
› TVM
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 Internal Credit Risk Rating
 Differ from bank to bank
 Risk validation
 Separate risk rating mechanism
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 Management Analysis
› Past Track Record
› Managerial Competence
› Financial Strength
› Project Team
› Financial performance of group, Promoters(willful

default)
› CDR Mechanism
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 Technical Evaluation
› Feasibility Study
› Outsourcing
› TPC
 Land
 Building
 Equipment
 Working Capital
 Provisional Expenses
 Interest
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 Financial Viability
› Equity, Debt
 Pure Rupee
debt
 Foreign
Currency Debt
 Subordinate
Debt
 Mezzanine
Debt
 Financing Pattern
 Cost of project
 Means of
financing 31
 Market Assessment
› Industry Profile
› Demand –Supply Position
› Competition Level
› Absorption Capacity of market
› Promoter’s Track record in

marketing
› SWOT
 Social
Impact
› Society
›
Employment 32
 Ecological Analysis
› Environment Damage
› Corporate Governance
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 Lenders and SPV
› Borrower SPV and EPC Contractor
› SPV and Fuel/RM Supplier
› SPV and Project Management Consultant
› SPV and buyer of SPV’s goods/services
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 Follow up of Project Finance
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 Trust and Retention Account (TRA)
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 Concession/License Agreement
 Shareholders Agreement
 EPC Contract
 Operations and maintenance Contract
 Financing Documents
 Common Loan Agreement
 Inter Creditor Agreement
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 Disbursement of project loans
› Drawdown Payments
› Ensuring End use

 Disbursement for Loan for Tractor
 Disbursement for power plant
 Monitoring in construction phase
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•  Network technique used in project implementation
 CPM and PERT
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 O&M activity is critical
 Monitor revenues and TRA
 Temporary Revenue Maintenance
 Interest rate dates
 Consortium Meetings
 Insurance policies
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Faculty of Management and Commerce ©Ramaiah University of Applied Sciences

 Completion without undue uncertainty

 Generate adequate revenues

 Significantly worth more on completion

 Equity Holding Pattern

 Non Recourse Debt

 Promoter Equity 15-30% (sponsors

 The Risk Shield

› Negative grant of Rs. 471 crore that would be paid to the

National Highways Authority of India (NHAI) by L&T.

 Legal advisor responsibility to advise

 BOOT : Build Own operate transfer

 DFBOOT : Design finance Build Own

 BOO: Build own operate 12

 Viability Gap Funding (VGF

 Time Consuming Process

 High Cost Project Debt

 Highest upto Commercial Operations date

 Construction Phase Risk

 Operational Phase Risk

 Free cash Flow for assessing project

› Decision Tree Analysis

 Differ from bank to bank

 Separate risk rating mechanism

› Financial performance of group, Promoters(willful

› Demand –Supply Position

› Absorption Capacity of market

› Promoter’s Track record in

› SPV and Fuel/RM Supplier

› SPV and Project Management Consultant

› SPV and buyer of SPV’s goods/services

› Ensuring End use

 Disbursement for power plant

 Monitoring in construction phase

 CPM and PERT

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