project appraisal & project syndication

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