Group 8

Project Finance

99 Neha Thadani 21 Darshan Kanayalkar 73 Sagar Rajput 38 Karthik Subramaniam 69 Roshni Shetty 89 Subrot Sikdar 82 Shruti Shah

Case - 1

Objective-to develop marine costlineMMB is responsible to design,

finance, construct, operate, maintain and manage a multi-purpose, common user port facility

BL formed -SPV named M/s Sigma Ports Limited

Clinton Group-strategic investor

Sigma Port is located south of the Karanja Fishing Harbour on the West Coast of Maharashtra

Locational advantage,Mumbai- major economic, and trade centers in the country

Proposed development of two large Specials Economic Zones

The Clinton Group, founded by Mr. George Clinton

businesses in the energy and materials value chain

track record of successfully implementing large projects

has experience in management of ports

Item Cost As a % of Project Cost(in INR Crores)

Dredging 1789.94 35.17%Land and Land Development 27.83 0.57%Site Development incl costal Protection 128.74 2.64%Quay Construction 444.85 8.73%Coastal / Shore protection 50.45 0.99%

Navigation Aids 15.53 0.32%

Container Terminal - Infra Structure 329.45

6.50%

Container - Handling Equipment 581.87 11.96%

Coal Terminal - Infra structure 57.36 1.13%

Coal - Handling Equipments 243.38 5.03%

Iron Ore Terminal – Infrastructure 31.58 0.62%

Iron Ore / Clinker / Lime stone - Handling Equipments 238.53

4.94%

Multi-Purpose Terminal 37.08 0.83%

Provision of External power & Water supply. 5.53

0.10%

POL - Liquid & Hydro Carbons 5.79 0.12%

Car storage 10.03 0.20%

Rail & Road - Connectivity 73.2 1.43%

Hazard Mitigation 10.36 0.21%

IT facilities for containers 17.8 0.35%

Particulars Amount (Rs. In crores)

Equity 562.59Quasi equity 971.75Senior Debt 3,580.13Total 5114.47

Types of risk involved:

Inherent risk-Resulting from nature of project

Acquire risk-Based on decision taken by Project team

External risk-Caused by factors outside control of project manager

Political risk Specific to country Change in government policy Change in party which is in power Civil unrest National strike Tax laws

Infrastructure projects –require extensive govt approvals

Objective of infrastructure project is to provide goods & services to public

Lending during construction phase-high degree of risk

Long gestation period

Infrastructure project-large & complex

Technology involved-requires constant upgradation

Project financing sources are difficult to find

InsuranceTax arrangementsMitigation of participant risk –All

sponsors have a strong backgroundLegal risk can be reduced through

proper contract agreement s

Case -2

Gaurav Ferrotech Pvt. Ltd. (GFPL), a part of Gaurav Group, proposes to set up an 8X13.5 MVA ferro alloy plant at Haldia, West Bengal.

Total capacity => 119,401 tpa of ferro manganese => 61,406 tpa of silico manganese

The promoters have adequate experience in implementation and operation of a ferro alloys plant.

Gaurav Ispat Alloys Ltd. (GIAL) already operating a 38,500 tpa ferro manganese plant at Durgapur. 90% of the production is exported. GIAL has also

developed capabilities for producing export quality ferro manganese from silicious manganese ore chips/fines. The company has already identified and put together an experienced team for execution of the Project and monitoring day to day operations of the plant.

Cater mainly to the international markets since demand for high grades of Ferro-alloys are higher in the international markets.

The company is at an advanced stage of negotiation for entering into an agreement for supply of Manganese Ore (lump) with Comang Mine, South Africa for a period of 30 years.

The company is also exploring the option of acquiring a manganese ore mine in Indonesia.

The promoters are already operating 38,500 tpa Ferro – Manganese (FeMn) plant at Durgapur The promoters have developed relationships with various international buyers for supply of FeMn and SiMn.

The promoters would use its current marketing expertise for sale of GFPL’s products. They are also considering setting up of international trading business in Ferro-Alloys and other steel intermediaries through a separate marketing outfit. In this regard, it has identified a top executive with over 10-year experience in international marketing and business development to head the company.

GFPL has signed MoUs with the following international buyers for supply of FeMn and SiMnName of the

buyerMoU date Yearly offtake

(tonnes)Lemetco GMBH, Germany

December 18, 2007 25,000 of FeMn and SiMn

Lux Alloys SA, Luxembourg

December 18, 2007 25,000 of FeMn and SiMn

The project cost of Rs 555.32 crores includes provision to enhance capacity of furnaces from

13.5 MVA to 18 MVA each to produce Silico-Manganese at a marginal cost of Rs. 67.50 lakh per furnace.

Cost of setting up a sintering plant. Cost of a 220 KV/33KV substation

Cost of the project excluding these cost components and cost of land is Rs. 2.54 crores per MVA of furnace capacity, which is comparable to that of various ferro alloys projects in the planning and execution stage.

The project cost is proposed to be financed at a debt equity ratio of 2:1. The proposed components of financing are

Promoters The promoters propose to bring in their equity through their

investment companies by liquidating investments.

Value of total investments => Rs 152 crores

Amount already brought in by promoters => Rs 19.75 crores

Particulars % Rs. in crores

Equity 33.33% 185.11

Debt 66.66% 370.22

Totla 100% 555.33

Strategic Investor – Manganese ore supplier The majority shareholder (51%) of

Comang Mining, South Africa, with whose nominee GFPL is entering into long-term agreement for supply of Manganese ore, is agreeable in principle, to subscribing 20-49% of GFPL’s equity subject to ongoing due diligence.

Ferro alloy - used in the production of steels and alloys as a raw material.

most widely used Ferro-alloys are Ferro-chrome, Silico-manganese and Ferro-manganese

used as de-oxidizing agents and also added as an alloy to improve the wear resistance and corrosion resistance properties of steel

the average percentage of Consumption for period 2005-06 and 2006-07 compared to 1 unit of Steel is FeMn is 0.60% SiMn is 1.31%

Ferro Alloy Industry is hence dependent on the Steel Industry for its demand and growth.

The overall production of Ferro Alloys in India 2.00 million tonnes in 2006-07 as compared to 1.65 million tonnes in 2005-06, registering a growth of 21.21 %

According to CRISIL Infrastructure Advisory, there is a demand supply gap in the industry

Need to increase manufacturing capacity of manganese alloys in the medium term by 10-15% (1-1.5 million tpa).

2008 (TPA) 2012 (TPA)

FeMn 83,501 2,55,581

SiMn 114510 4,88,719

Ferro Manganese prices have largely been dependent on the steel price movements

FeMn Prices reached a high in 2004 and dipped again in 2005

Historically, the SiMn prices have been 10% higher than those of FeMn

Most widely consumed metal after iron, aluminium and copper

About 95% of manganese is used in Steel Industry in various forms

Manganese ore is the most vital raw material used in the production of FeMn & SiMn

Gaurav Ispat Alloys Limited (GIAL) has been producing export grade Fe-Mn with siliceous chips consistently for last one year with the following parameters

However, the company proposes to use conventional manufacturing process with 50% lumpy ore and 50% sintered manganese fines. The company is also entering into a long term contract for supply of lumpy manganese ore

Requirements for Export

grade Fe-Mn

Achieved by the company

Mn (Minimum)

75.00% 76.00%

P (Maximum) 0.25% 0.22%

Si (Maximum)

1.50% 1.20%

S (Maximum) 0.03% 0.02%

C 6 TO 8 % 6 TO 8 %

Size 10 - 50 mm 10 - 50 mm

International buyers backing out of the deal

Failure to get supply of Manganese Ore from Comang Mine, South Africa

Using of silicious chips - 11 mm against normal size of 75 mm