Special Purpose Vehicle

Special Purpose Vehicle
Contents
•Concept of SPV
•Objective of SPV
•Financing an SPV
•Governing Body
•Powers and Functions
•Employment in SPV
•Shares in a Project
•Accounting for SPV
Concept of Special Purpose Vehicle
 Legal entity created to fulfill narrow, specific or temporary
objectives.
 SPVs are used by companies to isolate the firm from

financial risk.
 A company will transfer assets to the SPV for management

or use the SPV to finance a large project thereby achieving
a narrow set of goals without putting the entire firm at risk.
 SPVs are also commonly used in complex financings to

separate different layers of equity infusion.
Objective of SPV
 Securitization: of loans (or other receivables).
 Risk sharing: Legally isolate a high risk project/asset from the parent company and to allow
other investors to take a share of the risk.
 Finance: Multi-tiered SPEs allow multiple tiers of investment and debt.
 Asset transfer: SPV can be sold as a self-contained package, rather than attempting to
assign over numerous permits.
 Generation of competition
 Financial engineering: SPVs are used in financial engineering schemes which have the
main goal of avoidance of tax or the manipulation of financial statements.
 Regulatory reasons
 Property investing
It is the SPV that signs It makes its Can claims the legal
contract with government obligations secure rights of ownership
and with subcontractors to even if the parent of the assets
build the facility and then company goes transferred from the
maintain it bankrupt. loan originator
Financing SPV
 Long-term debt raised from open market
 Equity
 Debt raised from the market through suitable instruments created for the
purpose. Debt of maturity of 10 years and beyond.
 Debt from bilateral or multilateral institutions such as the World Bank and Asian
Development Bank.
 Foreign currency debt, including through external commercial borrowings raised
with prior approval of the Government.
 The guarantee fee payable by the SPV : 0.25% per annum on outstanding
balances.
 Terms for guarantee reviewed after 5 years
 Funds of shorter duration than ten years may be raised only on account of
asset-liability management consideration.
Finance Eligibility
Commercially viable projects.
Project shall be implemented by:
Public Sector Company;
Private Sector Company selected
under PPP initiative
A Private Sector Company
Process of Finance Mobilization
Governing Body
Governing body of Society
The Governing Body will consist of minimum number of members required to form/register a society i.e. seven
members.
 President
 Vice-President
 Secretary
 Treasurer
 Member
 Member
 Member
General Body will consist of all the members of the society.
Executive Committee members will consist of

 President
 Vice-President
 Secretary
 Treasurer
 Governing Body will decide the liability and fine to be imposed on the members.
 The Governing Body will have discretionary power to Accept or decline the resignation of any members.
 The Governing Body will have power to decide the expulsion of any member of the trust after giving him
required notice for the same.
Governing Body
Governing Body of Company

 Constitution of Board of Directors
 Chairman,
 Vice- Chairman/MD,
 Company Secretary
 Directors
Governing Body of the Trust

 President
 Secretary
 Cashier
 Rest of the members will be ordinary members.
Governing Body
Board of Directors
10 members
Two Directors on behalf of State Government.
The government will be able to nominate a Third Director in the BoD, if it increases its share to 26 per cent.
The chairman of the board will be a Government nominee and each director will have eligibility for one vote.
 The General Body meetings to be held once in 45 days.

 Quorum: One third of the total members eligible to vote
 Expansion of Governing Body done by President
Powers and Functions
 Power & Function of the President.
 The President shall preside over all the meetings of the trust, He will be head of the trust
 Power & Function of Vice-President.

 In absence of the President the Vice-President will utilize all the power of the President.
 Powers & Functions of Secretary.

 Conduct the correspondence of all trust all trustees or organisation for development of type of
industry/project). Conduct meetings of executive committee and general body. Record the
proceedings of meeting and report to President.
 Powers & Functions of Treasurer.

 Collect the donations, grants from government or any other institution
 Collect subscriptions
 Present the yearly statement of income and expenditure in the meeting of the Executive
Committee of the trust.
 He has the power to deposit the collection on behalf of the trust
Employment in SPV
Post Number
Managing Director 1
Engineers 4
Project Manager 1
Account Assistant 1
Account Office Assistant 1
Computer Operator 1
Attendant 1
Shares in a Project
• The State government will have a 16 percent of total share in the project out of
total.
• The remaining shares will belong to the joint venture be distributed amongst the
other groups involved.
• The state government has the increasable shares upto 26 percent after five
years on the price of "call shares" which will be decided by an valuer appointed
individual on mutual approval.
• The independent third-party owner (or owners) investment is substantive

(generally meaning at least 3 percent of the SPE’s total debt and equity or total
assets).
Accounting for SPV
 The 3% rule : The sponsor of a SPV does not have to consolidate the assets
and liabilities of the SPV as long as equity interest of a third-party owner was at
least 3% of the SPV’s total capitalization.
 Identification of variable interest entities (VIE)
 Determine when a business enterprise should include the assets, liabilities, non
controlling interests, and results of activities of a VIE in its consolidated financial
statements

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Special Purpose Vehicle

 SPVs are used by companies to isolate the firm from

 A company will transfer assets to the SPV for management

 SPVs are also commonly used in complex financings to

General Body will consist of all the members of the society.

Executive Committee members will consist of

Governing Body of Company

Governing Body of the Trust

 The General Body meetings to be held once in 45 days.

 Power & Function of Vice-President.

 Powers & Functions of Secretary.

 Powers & Functions of Treasurer.

• The independent third-party owner (or owners) investment is substantive

 Identification of variable interest entities (VIE)

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