SAHADEV
Avantika
Pranavi
Bikash
Seema
Alok
Kanika
Kanupriya
Vallabh
PROJECT APPRAISAL & PROJECT SYNDICATION
Project Appraisal
Meaning and definition
PROJECT APPRAISAL
Assessment of a project in terms of its economic, social and financial viability
A lending financial institution makes an independent and objective assessment of various aspects of an investment proposition
It is defined as taking a second look critically and carefully at a project by a person who is in no way involved or connected with its preparation. He is able to take independent, dispassionate and objective view of the project in totality, along with its various components
Steps /Aspects of Project Appraisal
Economic Aspects
Technical Aspects
Organizational Aspects
Managerial Aspects
Financial Aspects
Market/Commercial Aspects
PROJECT APPRAISAL
Economic Aspects
PROJECT APPRAISAL
Analyses if the benefits will justify the project cost/investment done
A successful project gives following benefits:
• Increased output• Enhanced services• Increased employment• Larger government revenue• Higher earnings• Higher standard of living• Increased national income• Improved income distribution
Technical Aspects
Site and Location: RM supply, proximity to markets, transportation facility, power supply, manpower, water, government policies, labour laws, climate, taxes
Size of plant/scale of operations: Technological capacity is standardised for achieving economies of scale, low demand or less resource availability result in economies of scale
Technical feasibility: Technology selected, availability of infrastructure, plant layout, project implementation schedules etc
PROJECT APPRAISAL
Organisational Aspects
PROJECT APPRAISAL
Organisation structure, recruitment and training aspects are studies
Appraisal done to see if project is adequately staffed, initial recruitment is done
Project
Eligibility
Legal Framework
Market Prospect
Investment cost
Procurement
Time schedule
Environme-ntal compatibili-ty
Economic + Financial viability
Technology and Design
Promoter’s Standing
PROJECT APPRAISAL
Financial Aspects
PROJECT APPRAISAL
Cost analysis: Finding out the cost of production
Pricing: Deciding price of the product after considering demand, profit and competition
Financing: Raising funds and efficient use of the same
Income and Expenditure: Concerned with predicting profit and costs involved
Market/Commercial Aspects
PROJECT APPRAISAL
Analysis of market opportunities
Specification of marketing objectives
Planning and organising of marketing process
Controlling of implementation of marketing plan
What can Project Appraisal Deliver?
PROJECT APPRAISAL
Project appraisal helps a partnership to• be consistent and objective in choosing projects• make sure its programme benefits all sections of the
community• provide documentation to meet financial and audit
requirements and to explain decisions to local people.
Appraisal justifies spending money on a project. • Appraisal asks fundamental questions about whether
funding is required and whether a project offers good value for money.
What can Project Appraisal Deliver?
PROJECT APPRAISAL
Appraisal is an important decision making tool. • It helps ensure that projects selected for funding will help
a partnership achieve its objectives for its area are deliverable are sustainable have sensible ways of managing risk.
Appraisal lays the foundations for delivery. • Appraisal helps ensure that projects will be properly
managed, by ensuring appropriate financial and monitoring systems are in place, that there are contingency plans to deal with risks and setting milestones against which progress can be judged
Key issues in Project Appraisal
PROJECT APPRAISAL
Need, targeting and objectivesContext and connectionsConsultationOptionsInputsOutputs and outcomesValue for moneyImplementationRisk and uncertainty Forward strategiesSustainability
Checklist
•Whether you are involved in a partnership with an appraisal system in place, or starting to design one from scratch, these questions are worth asking.•Are appraisals systematic and disciplined with a clear sequence of activities and operating rules?•Is there an independent assessment of the project by someone who has not been involved with the development of the project?•Does the appraisal process culminate in clear recommendations that inform approval (or rejection) of the project?•Is the approval stage clearly separate?•Is the appraisal process well documented, with key documents signed, showing ownership and agreement, and allowing the appraisal documentation to act as a basis for future management, monitoring and evaluation?•Does the appraisal system comply with any relevant government guidance (See the information section for further details)?•Are the right people involved at various stages of the process and, if necessary, how can you widen involvement? (Here, you may also want to look at other topics, such as building a partnership, or community involvement.)•Does your system enable the key components of successful project appraisal (summarised above) to be considered within a balanced appraisal of a project as a whole?
PROJECT APPRAISAL
Raliway project appraisal Group (European Union)
Key factors
PROJECT APPRAISAL
Screening Process• Check that all individual projects • Identify the broad performance of the
projects • Ensure that, for demand-driven
projects, the effects on the users• Ensure that benefits are not dependent
on complementary projects
Key factors
PROJECT APPRAISAL
Establishing the appraisal context• Technical aspects• Regulatory aspects• Economic, social and political aspects
Traffic forecasting• Demand analysis and forecasting
PROJECT APPRAISAL
Definition of alternatives
Environmental, Safety, Cohesion effects
Systemic View
Financial Analysis, Cost benefit
Definition of alternatives
Approach to project Appraisal
PROJECT APPRAISAL
Systemic View
Ensuring the quality of cost-benefit analysis
Presenting re-distribution impact
National Roads Authority
PROJECT APPRAISALPROJECT APPRAISAL
Definition of alternatives
Route Selection
Preliminary Design/Land Acquisition
Construction Documents Preparation & Tender Award
Overall Project Planning
Appraisal Stage
National Roads Authority
PROJECT APPRAISALPROJECT APPRAISAL
Final Account/Closeout
Evaluation Phase
Project Syndication
Meaning and Definition
A syndicated facility is a lending facility, defined by a single loan agreement, in
which several or many banks participate.
PROJECT SYNDICATION
WHEN IS IT THE RIGHT SOLUTION?
PROJECT SYNDICATION
A borrower wants to raise a relatively large amount of money quickly and conveniently.
The amount exceeds the exposure limits or appetite of any one lender.
The borrower does not want to deal with a large number of lenders.
Roles within the syndication process
PROJECT SYNDICATION
Arranger / lead manager• The bank that:• Is awarded the mandate by the prospective
borrower, and• Is responsible for placing the syndicated loan
with other banks and ensuring that the syndication is fully subscribed.
• Arrangement fee• Reputation risk
Roles within the syndication process
PROJECT SYNDICATION
Underwriting bank• The bank that commits to supplying the funds
to the borrower -if necessary from its own resources if the loan is not fully subscribed.
• May be the arranging bank or another bank.• Not all syndicated loans are fully underwritten.• Risk: the loan may not be fully subscribed.
Roles within the syndication process
PROJECT SYNDICATION
Participating bank• The bank that participates in the syndication by
lending a portion of the total amount required.• interest and participation fee.• Risks:• borrower credit risk (as normal loans).• A participating bank may be led into passive
approval and complacency (i.e. so many high profile banks cannot be wrong!).
Roles within the syndication process
PROJECT SYNDICATION
Facility manager / agent• The one that takes care of the administrative
arrangements over the term of the loan (E.g. Disbursements, repayments, compliance).
• Acts for the banks.• May be the arranging/underwriting bank.• In larger syndications co-arranger and co-
manager may be used.
Benefits
PROJECT SYNDICATION
•Deals with a single bank.
•Quicker and simpler than other ways of raising capital (e.G. Issue of bonds or equity).
Borrower:
•Good arrangement and other fees can be earned without committing capital.
•Enhancement of bank’s reputation.
•Ehnancement of bank’s relationship with the client
Lead Banks:
•Access to lending opportunities with low marketing costs.
•Opportunities to participate in future syndications.
•In case the borrower runs into difficulties, particpant banks have equal treatment.
•Participant banks do not find themselves at a disadvantage vis-ά-vis a dominat bank or one with high leverage over the client.
Participating Bank:
Stages
PROJECT SYNDICATION
PRE-MANDATE PHASE• The prospective borrower may liaise with a single bank or
it may invite competitive bids from a number of banks.• The lead bank needs to:
• Identify the needs of the borrower.• Design an appropriate loan structure.• Develop a persuasive credit proposal.• Obtain internal approval.
MILESTONE: AWARD OF THE MANDATE.
Stages
PROJECT SYNDICATION
Placing the loan• The lead bank can start to sell the loan in the marketplace.• The lead bank needs to:• Prepare an information memorandum• Prepare a term sheet• Prepare legal documentation• Approach selected banks and invite participation
• Negotiations with the borrower may be needed if prospective participants raise concerns.
Milestone: closing of the syndication, including signing.
Stages
PROJECT SYNDICATION
POST-CLOSURE PHASE• The agent now handles the day-
to-day running of the loan facility.
pricing
PROJECT SYNDICATION
Fees for “front-end activities”-arrangement and underwriting fees.
Interest (margin over base rate).
Commitment fees for available but undrawn funds.
Agency fees -payable for administrative activity during the term of the loan.
documentation
PROJECT SYNDICATION
Specialist lawyers working closely with all the banks.
The role of each party is clearly defined.
Some standard clauses are included
Market and competition
PROJECT SYNDICATION
Syndications in Cyprus are formed for the development of big projects and for refinancing purposes.
Examples:
• Aphrodite hills -cyp30m -arranger/agent: HSBC.• Take over of the shares of Hilton hotel by Louis group -cyp16m
-arranger/agent: HSBC.• Take over of ROCL shares by Louis -usd30m -agent/arranger: HSBC.• Acquisition of the vessel emerald by Louis -usd20m -arranger: HSBC -
agent: Societe Generale• Construction of Elysium beach resort -arranger/agent: Cyprus popular
bank.
EXAMPLE
PROJECT SYNDICATION
Tata Steel's lending syndicate is led by Citigroup Inc, Royal Bank Group PLC and LN Standard Charted Bank.
As part of the package, Tata Steel has invested GBP 425 million in Tata Steel UK in a phased manner.
Of which around GBP 200 million will be used to prepay debt and de-leverage the balance sheet.
EXAMPLE
PROJECT SYNDICATION
In 2005 Reliance Port and Terminal, a subsidiary of Reliance Industries, has raised loan for expanding its port facility (Rs 42 billion) to increase imports of crude oil by Reliance Petrochemicals, from 33 million tones to around 66 million tones. A total of 20 banks syndicated the loan with the security trustee being the UTI Bank.
Similarly, Indian Rayon raised Rs 750 crore to acquire 50 per cent of AT&T's stake in Idea Cellular. The balance of the AT&T stake, valued at Rs 1,500 crore (Rs 15 billion), will be picked up by the Tatas.
The same applied for a loan syndication of Rs 5,000 crore (Rs 50 billion) for Hindalco a few years back and for Rs 1,000 crore (Rs 10 billion) for Bhushan Steel.
Thank You