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Project finance is finance for a particular project, such as a mine, toll road, railway,
pipeline, power station, ship, hospital or prison, which is repaid from the cash-flow of
that project.

Project finance is different from traditional forms of finance because the financier
principally looks to the assets and revenue of the project in order to secure and service
the loan.

In contrast to an ordinary borrowing situation, in a project financing the financier


usually has little or no recourse to the non-project assets of the borrower or the
sponsors of the project.
In this situation, the credit risk associated with the borrower is
not as important as in an ordinary loan transaction; what is most important is the
identification, analysis, allocation and management of every risk associated with the
project.

Project finance involves the creation of a legally and economically independent


project company financed with nonrecourse debt (and equity from one or more
corporate sponsors) for the purpose of financing a single purpose, capital asset
usually with a limited life.

Project Finance Models is a Financial Modeling Resource for professionals working


in Investment Banking, Project Finance Advisory, Power Generation and Distribution,
Oil & Gas Companies, Transportation Industry, Aviation, Telecommunications,
Public Sector, Game Parks Development and other related industries.

         


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Project finance involves the creation of a legally independent project company


financed with non-recourse debt (and equity from one or more sponsors) for the
purpose of financing a single purpose, industrial asset.

Project finance is the raising of funds to finance an economically separable capital


investment project in which the providers of the funds look primarily to the cash flow
from the project as the source of funds to service their loans and provide the return of
and a return on the equity invested in the project.

Project finance is the financing of a particular economic unit in which a lender is


satisfied to look initially to the cash flow and earnings of that economic unit as the
source of funds from which a loan will be repaid and to the assets of the economic
unit as collateral for the loan.

         


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Project finance is the financing of long-term infrastructure and industrial projects


based upon a complex financial structure where project debt and equity are used to
finance the project.

Usually, a project financing scheme involves a number of equity investors, known as


sponsors, as well as a syndicate of banks which provide loans to the operation.

As a special purpose entity, the project company has no assets other than the project.
Capital contribution commitments by the owners of the project company are
sometimes necessary to ensure that the project is financially sound.

Project finance is often more complicated than alternative financing methods.


It is most commonly used in the mining, transportation, telecommunication and public
utility industries.

The project finance alternative to development has proved tremendously attractive and
efficient, creating much needed infrastructure as well as countless jobs.

A project finance deal involving a governmental concession agreement will, almost


invariably, require public bidding.

Project Finance is being introduced in both developed and developing countries as an


alternative way to finance infrastructure and industrial projects, both small and large.

         


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£? Government - this participant is responsible for creating an enabling


environment for project finance transactions through its legal system and other
associated legislation (e.g. agreements, permits, property rights etc).
£? |quity Funders - these are the owners of the project company and contribute
the riskiest portion of the total funding of the project (equity). Their
contribution is usually in the order of 40 to 50 percent, as a proportion of the
total funding.
£? Yonrecourse Debt Funders - these are the providers of Long-Term loans to the
transaction. They usually contribute about 60 to 70 percent of the total funding
of the transaction.
£? Operator - this is usually the |ngineering Firm that is in control of the
construction and operations/management of the project (e.g. Power Plant).
£? Construction/|ngineering Consultants - this is the company responsible for the
engineering, procurement and construction. <LI>|quipment Supplier - this is
the selected manufacturer of the key equipment to be used during construction
of the project.
£? |nvironmental Impact Assessment (|IA) Consultant - this is the specialist who
assesses whether the project meets the minimum standards of both national and
international environment related legislation and agreements.
£? Affected Communities - these are important stake holders who are directly or
indirectly affected by the project (e.g. communities that have to be relocated
because of the construction of a power station, toll road, dam, mine etc.)

         


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Project financing is an innovative and timely financing technique that has been used
on many high-profile corporate projects.

Increasingly, project financing is emerging as the preferred alternative to conventional


methods of financing infrastructure and other large-scale projects worldwide.
Project financing discipline includes understanding the rationale for project financing,
How to prepare the financial plan, assess the risks, design the financing mix, and raise
the funds.
In addition, one must understand the cogent analyses of why
some project financing plans have succeeded while others have failed.

A knowledge-base is required regarding the design of contractual arrangements to


support project financing; issues for the host government legislative provisions,
public/private infrastructure partnerships, public/private financing structures; credit
requirements of lenders, and how to determine the project's borrowing capacity; how
to prepare cash flow projections and use them to measure expected rates of return; tax
and accounting considerations; and analytical techniques to validate the project's
feasibility

In a project financing the financier usually has little or no recourse to the non-project
assets of the borrower or the sponsors of the project.

The purpose of this project is to explain, in a brief and general way, the manner in
which risks are approached by financiers in a project finance transaction. Such risk
minimization lies at the heart of project finance.

         


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R 
 
  
?
R.? Project finance is a finance structure which ensures that the projects are
environmentally, socially, economically and politically viable.
2.? Traditional methods are not suitable for projects which have a long life and
require huge capital investment.
3.? Risk sharing is another unique feature of project finance which traditional
methods do not provide.
4.? Project Finance improves the return on capital in a project by leveraging the
investment
5.? Project finance facilitates careful project evaluation & risk assessment

         


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Project evaluation is a high level assessment of the project to see whether the project
is worthwhile to proceed and whether the project will fit in the strategic planning of
the whole organization.
Project evaluation helps to decide which of the several alternative projects has a better
success rate, a higher turnover.

 

  

         


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å 
   


 
The key parameters to be evaluated in a project are:
R.? Risk Analysis
2.? Demand Analysis
3.? Project Cost |stimation
4.? Revenue Analysis
5.? Financial Analysis
6.? Project Selection Criteria

m ? ?

Risk analysis is a technique to identify and assess factors that may


jeopardize the success of the project. Risks associated with capital investment
proposals can be broadly classified as:
R.? Financial Risk
2.? Other-Risk:

    

Financial risk is defined as the possibility that the actual return on


an investment will be different from the expected return.
Many techniques are available for determining financial risk
involved with the projects like Risk adjusted Discount Rate, Certainty |quivalent,
Sensitivity Analysis, DCF, Break |ven Analysis, Probability Assignment, Standard
Deviation etc.

         


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Other risks constitute risks which may be an obstacle in the success/
Completion of the project. Risks which can be included in other risk are

R.? Availability Risk


2.? Completion (technical and timing) Risk
3.? Counterparty credit risk
4.? Country (political) Risk
5.? Inflation Risk
6.? Input and throughput Risk
7.? Market (demand) Risk
8.? Technological Risk

p p? :
Demand analysis involves forecasting the demand on the basis of
market surveys and manufacturing capacity of the unit and this is decided through the
study of demand and supply.

The potential users, their habits, and possibility of changing these


habits, the pricing of the products, the designing are studied under demand
forecasting. In the demand analysis we check if there is a scope for laying a pipeline,
if the demand at destination is less, then a pipeline is not required.

The major Steps in demand analysis are


ö? Determining different uses of a project output
ö? Determining current consumption level and future demand
ö? Finding financial and economical benefits from the project

         


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›m ??   ?


?
Accurate estimation of costs is vital for the effective evaluation of
the project since it is important for knowing the financial feasibility of the project.
The capital costs and operating costs of the project is considered in
this step. The following factors needs to be kept in mind while estimating costs.

ö? Base Cost |stimate


ö? Contingency Costs
ö? Cost Factor for difference between domestic & foreign inflation rates
ö? Financing cost incurred during the construction period on loans specifically
borrowed for project is capitalized at the actual borrowing rates.

m   ? ?
Revenue analysis is estimation of the revenues which would be
earned in the future. Revenue projections are formed on the basis of Output sales. It
helps in finding out the profits/ losses in the future.
Revenue analysis is all the more important in project finance
because the debts have to be repaid through the revenues generated by the project.

 ? ?
Financial analysis refers to an assessment of the viability,
stability & profitability of a project.
It seeks to ascertain whether the proposed project will be
financially viable in the sense of being able to meet the burden of servicing debt and
whether the project will satisfy the return expectations of those who provide the
capital.
›m ?   ?m  m ?

         


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Once information about expected return and costs has been gathered,
the next question arises: whether the project should be selected or not. There are many
methods of evaluating the profitability of the project.

The project selection can be done on basis of profitability of a project and profitability
measured by the following methods.

? ›  ? ? ?


?   ?  ??  ? ??
?  ?  ?  ? ?
?   ?m  ??m  ? ?
? ›  ? ?
Yow let us understand these methods in detailed.
?
›  ? ? ?
It represents the period in which the total investment in permanent assets pays back
itself.
Payback period = Investment
Cash Flows/year
  ?  ??  ? ??
This method takes into account the earnings expected from the investment over their
whole life.
ARR = Average Annual Profits after depreciation & Taxes x R00
Average Investment

Where, Average Investment = Original Investment + Salvage Value


 ?›m  ? ? p??

         


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The Yet present value method is the modern method of evaluating investment
proposals.
YPV= Present value of cash inflows ± Present value of cash outflows.
IYT|RYAL RAT| OF R|TURY M|THOD: It is also known as trial & error yield
method.
?
›m
  ? p ?
It measures the Present Value of returns per rupee invested
PI = Present value of Cash Inflows
Present value of cash Outflows

A 

  


         


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|conomic recession is generally used to describe a situation in which a country's


GDP, or gross domestic product, sustains a negative growth factor for at least 2
consecutive quarters.

Being that the United States is the leader when it comes to consumption of goods and
services; an economic recession here will send shockwaves across the world, creating
a global recession.

The only way to truly recession proof your portfolio during a severe global recession
is to move your money to cash or US treasury instruments.

In macroeconomics, recession is defined as a distinct decline in any particular


country's Gross Domestic Product which is also called as GDP.

In some other cases, when a country faces negative real economic growth, for two or
more successive quarters of a year, that¶s also termed as state of recession. Though,
the exact definition of recession has always been controversial and economists tend to
differ in defining recession.

According to µThe Yational Bureau of |conomic Research¶ recession is defined as "a


significant decline in economic activity spread across the economy, lasting more than
a few months." In general, recession affects a country¶s overall economic activities,
including, investment, employment rate, profits data of companies etc.

         


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This is another staunchly debated topic; but the general consensus is that a recession is
primarily caused by the actions taken to control the money supply in the economy.

The Federal Reserve is responsible for maintaining an ideal balance between money
supply, interest rates, and inflation.

When the Fed loses the balance in this equation, the economy can spiral out of
control, forcing it to correct itself.

This is precisely what we have seen in 2007, where the Feds monetary policy of
injecting tremendous amounts of money supply into the money market has kept
interest rates low and inflation edging higher.

Combine this with the relaxed lending policies which made it easy to borrow money
and you have economic activity which becomes unsustainable, resulting in the
economy coming to a near halt.

It is also said that economic recession can be caused by factors that stunt short term
growth in the economy, such as spiking oil prices or war.

However, these are mostly short term in nature and tend to


correct themselves in a quicker manner than the full blown recessions that have
occurred in the past.

         


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An economic recession can usually be spotted before it happens. There is a tendency


to see the economic landscape changing in quarters preceding the actual onset.

While the growth in GDP will still be present, it will show signs of sputtering and you
will see higher levels of unemployment, decline in housing prices, decline in the stock
market, and business expansion plans being put on hold.

         


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o  

 

The majority of project finance transactions are oriented around long term contracts,
usually with investment grade counterparties.

Fitch¶s rating analysis typically reflects the project¶s standalone credit metrics derived
under the pricing mechanics and delivery obligations of the contracts.

However, as the counterparty¶s credit quality begins to decline, there is greater risk
for contract termination or counterparty payment default.

In these circumstances, the project¶s standalone credit quality as a merchant facility


will be influential in determining the rating outlook.

Many project finance transactions have market exposure, usually via a merchant
business plan but occasionally through contracts indexed to market prices.

When evaluating these projects, Fitch¶s rating decisions are heavily based on the
financial performance during stressed market conditions ± typically involving fuel
prices and market overcapacity.

Subsequently, if the agency believes there is a permanent shift in the market away
from its initial stress assumptions, it could upgrade if the shift is favorable or
downgrade if unfavorable.

         


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As Fitch expects regulated utilities and financially strong competitive generators to


withstand the current environment, the rating outlook for projects having fixed price
off take agreements with these counterparties is stable.

The primary risk for this category of projects involves technical performance and
operating costs. Although these are important contributors to credit quality, they are
largely project specific issues and not linked to industry wide events.

The rating outlook for projects selling their output to midsized or highly levered
competitive generators is negative, reflecting the possibility of deteriorating
counterparty credit quality.

The magnitude of rating action, if any, for an affected project will be highly specific
to the original contractual arrangements and the project¶s prospects in its local
marketplace.

The rating outlook for projects with market exposure is stable. Fitch acknowledges the
steep decline in gross margins and expects debt service coverage will be meaningfully
lower than in recent years.

This is particularly true for coal fired and hydroelectric projects, and to a lesser degree
for natural gas fired projects.

However, Fitch notes that previous market conditions were extremely favorable for
merchant generation. Yotably, current fuel prices remain above the levels assumed in
the agency¶s market stress scenarios and meaningful overcapacity is considered
unlikely.

         


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Although cash flows will be lower than in previous years, Fitch expects financial
performance of merchant generators will exceed that assumed in its stress scenarios
on which the ratings are based.
?
 ? ? ?  ?  ??

Fuel supply arrangements, especially for merchant coal fired generators. Considering
the steep decline in fuel prices, fixed price contracts executed in recent years may
result in a negative margin on market based energy sales.

Yotably, coal supply agreements often involve fixed prices for three to five year
terms. Counterparty credit quality, especially when the counterparty is an independent
generating company as this segment is more vulnerable to sudden credit issues.

Maturity of credit facilities that satisfy debt service and maintenance reserves,
performance obligations, and so on.

A failure to replace or renew will likely result in additional indebtedness as funds may
be drawn prior to maturity of the current facility.

|nvironmental compliance strategies may alter cost structure and operating practices
for |uropean generators. Coal fired generators appear particularly vulnerable.

         


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o R    


       

 
In economic recession the project financing is very difficult because overall economy
is down the main problem is create for the finance that how finance will create
because company has a means of finance in following ways;

O     





  
 


  
 

O   


 

 
  
 

         


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A company has these kind of funds sources now in the situation of recession it is a
very difficult to use a equity capital because to get a fund from equity share and
preference share very hard because of bad situation of a market and economy.

??? ???   ?  ? ? ?  ?  ? ? ?


  ? ?  ?  ? ?   ?  ?  ? ? ?  ?  ?  ? ?
  ?  ?  ? ?   ?   ?   ? ?  ?  ? ?  ? ?   ?   ?
  ?   ?  ?  ? ? ? ? ??  ? ? ?  ?? ? ?
 ?? ? ? ?? ? ?  ??  ? ?  ? ??  ?
 ? ? ? ? ?  ? ??   ?? ? ? ?  ? ? ? ?
? ?  ??

         


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†   
 

 
Yow here I am going to explain that how project evaluate and what are the parameters
should check accordingly sector wise.
Yow If I want to prepare

† R
  
 

  
The majority of project finance transactions are oriented around longMterm
contracts, usually with investmentMgrade counterparties. Fitch¶s rating analys
typically reflects the project¶s standalone credit metrics derived under the pricing
mechanics and delivery obligations of the contracts.

Many project finance transactions have market exposure, usually via a merchant
business plan but occasionally through contracts indexed to market prices.
?
 ?? ??
? Fuel supply arrangements, especially for merchant coalMfired generators
Considering the steep decline in fuel prices, fixed price contracts executed in
recent years may result in a negative margin on marketMbased energy sales
Yotably, coal supply agreements often involve fixed prices for threeM to five
year terms.

? Counterparty credit quality, especially when the counterparty is an independent


generating company as this segment is more vulnerable to sudden credit issues.

         


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? Maturity of credit facilities that satisfy debt service and maintenance reserves
performance obligations, and so on. A failure to replace or renew will likely
result in additional indebtedness as funds may be drawn prior to maturity of the
current facility.
? |nvironmental compliance strategies may alter cost structure and operating
practices for |uropean generators. CoalMfired generators appear particularly
vulnerable. |quipment supply; technical failures; and reliability of forecasts.

† 
  

Projects in this group generally have financial structures that reflect their exposure to
volatile market prices. Gearing is low (30M50% debt to project costs) relative to other
infrastructure sectors.
?
 ?? ??
?
? Increasing capital costs;
? Breakeven hydrocarbon price; and
? Construction delays.

?
?
?
?
?
?
?
?

         


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† 
  


 

? A continuation of the decline in vehicle miles travelled (VMT) could cause larger
? reductions in toll road traffic and make free alternatives less congested and
more competitive on a travel time basis.

? Publicly run facilities will face increased political opposition to toll increases at
? a time when these increases will be critical for many facilities to maintain
financial flexibility and to meet covenants.

? A significant increase in leverage on large regional facilities could materialize as


governments utilize those balance sheets to accelerate transportation investments.

? Interstate turnpikes with a large commercial component could experience a


significant loss in revenue if retail sales and consumer activity continues to
drop.
?
?
?
?
?
?
?
?
?
?
?

         


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† A
  



 


 

 
?
The outlook for the sector remains negative for 2009. |ven with fuel prices falling
substantially from record highs in 2008, the primary drivers for air travel business and
leisure still remain under significant pressure with employment down 2.8 million
in December 2008 over December 2007.

Further losses are expected into 2009. As a result, the previously announced
capacity reductions for the fourth quarter of 2008 were increased after the summer
and Fitch views the likelihood for either capacity or traffic growth in 2009 as
limited to a handful of facilities.

In addition that business and consumer sentiment over the ensuing year will likely
limit the effect of airline attempts to fill seats with lower fares and thus
enplanement growth will likely be muted over the next few years.
?
In 2008, Fitch noted that delaying capital spending and increasing operating
Margins through expense reductions and the mothballing of facilities were two
Important tools that management could exercise to deal with declining enplanements.

During 2008, most airports slowed capital spending and reduced expenses but
only passed on limited increases in rates and charges.

And it¶s because of recession the overall transportation projects and tertiary sector
was down due to law demand and over production.

         


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?
 ?? ??

? If the attempt by airlines to generate demand by lowering fares is unsuccessful,


additional capacity cutbacks are likely, further lowering passenger throughputs.

? The airline industry¶s increased focus on the bottom line could make it harder for
airports to pass along needed increases in rates and charges.

? To the extent that enplanement volume stays depressed over a twoMyear


period, management will be less able to maintain financial flexibility solely
through cost reduction efforts, delaying capital investment and raising parking
rates.

? The pace of airline service contraction throughout the region and the effect that it
might have on deferred capital expenditures; the financial counterparty risk faced
by some major publicly owned airports in Asia to offshore airport project joint
ventures; and the implications to airport capital expenditures of the growing
market presence by low cost carriers.

In economic recession the project finance is very important the project manager
should focused on the following aspects.
? MAYG|RIAL
? FIYAYCIAL
? T|CHYICAL
? COMM|RCIAL
? L|GAL
? |COYOMICAL

         


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  ?  ??

Compare profitability with that of existing firms in similar line, particularly the
PBIDT margin.

YPV/ (net present value) IRR (internal rate of return) method: Considered to be best
method for evaluating the capital investment proposals. It takes into account time
value of money

The sum of money received in future is less valuable than it is today. Present value
of rupee to be received is less than one. |.g. Re R00 today may not have the same
value after one year.

With Passage of time present value of rupee to be received in future will go on


decreasing

Technique of finding present value of money through discounting is YPV/IRR


method
Technical appraisal various areas covered are
±? Location aspects
±? Process
±? Technical arrangements
±? Raw materials
±? Utilities
±? |nvironmental factors
±? Manpower
±? Implementation schedule
?

         


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Infrastructure development has huge potential in developing countries of the Asia-


Pacific region. |merging economies in this area need billions of dollars in private
funding to spark infrastructure investment.

However, the classic problem of supply and demand puts forth an


obstacle ± while the demand for infrastructure investment is enormous, these
economies have failed to attract a supply of private investment in infrastructure
projects.

This lack of ventures in building adequate infrastructure can be attributed to weak


tariff regulation, reluctance in honoring concession commitments, inconsistent
enforcement of laws, corruption, poor governance practices, lack of availability of
long-term local currency financing at fixed interest rates, weak accounting and weak
securities legislation.

As the problem persists, investors are now reluctant to take currency mismatch,
interest rate and refinancing risks.

Traditionally, commercial banks have been the suppliers of long-term financing in


Asia and in doing so they have heavily relied on short-term deposits to meet their
funding requirements.

         


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Such a practice, especially in a weak banking environment, exposes the banking


sector to systemic risks.

|mirates Business 24/7 reported that the global economic distress has smothered
project finance in the Middle |ast and other areas of Yorth Africa and Western Asia
after it spearheaded such activity worldwide.

The UY Conference on Trade and Development said in its 2009 report that before the
eruption of the financial crisis in mid September 2008, West Asia was the world's
biggest market in project finance, largely surpassing such key markets as West |urope
and Yorth America.

The report said that the local and foreign private sector had played a key role in
project financing in Western Asia before the crisis.

Its figures showed that in the January to September of 2008, nearly USD 40 billion in
project debt was raised for developments in West Asia and Yorth Africa compared to
USD 32 billion in Western |urope and USD 29 billion in Yorth America.

In addition, the project finance debt rose in West Asia and Yorth Africa in the whole
of 2006 amounted to over 5% of the region's GDP compared to less than 0.25% in
Western |urope.

The report said that "However, the deepening global financial and economic crisis has
dried up project finance and has also led developers to reappraise projects in light of
the new economic outlook.

         


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Indeed, falling demand and the worsening outlook for credit markets are affecting
project prospects and their financing, especially those that require substantial
investments."

It said that "The collapse of the project finance market and the drying up of financing
from international banks has put pressure on governments to mobilize local liquidity
through increased direct public funding additional local equity or loans from local
banks.

For example, the Saudi Arabian Government has significantly relaxed its tight
monetary policy by cutting both the repurchase rate and reserve requirements for
banks to encourage lending."

UYCTAD said that several projects had been either cancelled or put on hold in the
M|YA region including a USD R0 billion aluminum smelter and 2 refineries with a
combined cost of USD 20 billion in Saudi Arabia. 2 other projects including a
destination plant and a theme park in the UA| have been delayed.

         


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Project financing discipline includes understanding the rationale for project financing,
How to prepare the financial plan, assess the risks, design the financing mix, and raise
the funds.
??
 ? ? : assessment of risk and management of risk can be done following
ways.
?
m?  ? ?  ??

The project sponsors will usually prepare a feasibility study, e.g. as to the construction
and operation of a mine or pipeline. The financiers will carefully review the study and
may engage independent expert consultants to supplement it. The matters of particular
focus will be whether the costs of the project have been properly assessed and whether
the cash-flow streams from the project are properly calculated.

m?  ??


Once the risks are identified and analyzed, they are allocated by the parties through
negotiation of the contractual framework. Ideally a risk should be allocated to the
party who is the most appropriate to bear it (i.e. who is in the best position to manage,
control and insure against it) and who has the financial capacity to bear it.
?
m?    ??
Risks must be also managed in order to minimize the possibility of the risk event
occurring and to minimize its consequences if it does occur. Financiers need to ensure
that the greater the risks that they bear, the more informed they are and the greater
their control over the project. Since they take security over the entire project and must
be prepared to step in and take it over if the borrower defaults.

         


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m  ? ??Yow fund raiser can be done by internal and external ways which I
saw above.

I am selecting the project on construction of commercial and residential complex.


(township)

The project financing process:

Firstly I selected the location that I want to construct the road b/w Rajkot to
Ahmadabad and particularly it is |xpress Way so there should be a straight and
forward road location where minimum turning point and Bridge would be there.

In financial planning includes all the estimates will be taken


Cost of material
-cement, send, still etc.
Cost of labor
|xtra mislanious expenses should be estimates.
From where the material will get and at a chipper rate.

Yow let us assume that here recession is going on.

The cost of material like send, bricks, cement, still, labor, and other expenses will be
cheaper but main cost is cement, still and labor now in last when the recession was
there the labor was very high even a recession in all over the company and economy.

|ven to get the labor in law prices will become very difficult so that company has to
pay labor cost what they want.

         


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Yow main problem is that how fund can generate in recession because all the bank
was affected by the recession and majorly banking sector was their which is highest
affected by the recession.

In this scenario to get a loan from a bank very difficult and if bank will section a loan
then the rate will become very high. And the repayment of loan will increase and
profitability of the project will decrease and at the time of project finance the project
should create and designed in which the profitability is high.

Yow for the fund generation of Fund Company has designed two different projects.

Basic information of project


Total cost of project is m!""? .
Total expected time of project is #? 
Company has a $""? . fund available for this project.
Labor will contract for 3 years
?
›  ?$?

Yow company will generate fund from flowing ways

By loan ± 200 cr.

By equity capital (IPO) R50 cr.

By borrowing from a private equity or privet financier or at a higher purchase


finance= 50 cr.
?

         


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›  ?%?

Yow this project is decided to generate a fund by joint venture i.e. with company X
and Y which is still company.
Company has R00 cr. Already fund available so by contract and terms and Condition
Company Y will also invest R00 cr. From their profitability.

So,
By commercial and other paper instrument ± 50 cr.

By secured loan ± R00 cr.

By IPO company will generate ± R50 cr.

By debenture of existing company will generate 500 cr.

Yow in the situation of recession the project 2 is much better and profitable because
company has done well financial planning by joint venture doing.

Company has generate a fund by debenture and IPO (equity capital) which is very
risky for investor and also for the company because both are the primary market
instruments and investor more interested in primary market because generally they are
safe and in debenture the investor will get good and fixed returns so investor will
ready to invest even a in recession situation due to fixed returns.

         


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Company has diversify their risk by different situation


ö? By joint venture
ö? By issuing primary market instruments.
ö? And by risk management and identification.

Because company has done joint venture with still company which will benefit for the
company X to reducing their cost of material.

In recession it is very difficult to get a loan so non banking finance company and
debenture instrument is best for the company for generate a fund fro a project.

         


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È
 


In a recession a company has to do project financing by doing proper financial


planning, risk identified which will be benefit in the generating fund.

So every company has these instruments by which they can generate fund even in
downfall economy.

a) |quity capital: It is the initial fund provided by the promoters of the firm for the
project. This is the permanent long-term capital invested by the owners/promoters.
The general public as well as investment institute also provide equity capital. Cost of
capital under equity capital is the rate of dividend declared and paid out of profit of
the company upon the completion and start of operation of the project.

(b) Preference shares: Initial funds for the project can also be raised through issue of
preference shares. The difference between the preference shares and equity shares is
that preference shareholders get a preference over the equity shareholders in the event
of liquidation. Preference shareholders also get a fixed dividend.

(c) Debentures: The issue of debentures also raises Funds. Debentures carry fixed rate
of interest redeemable after a stipulated period. At the end of stipulated period, the
issuing company buys the debentures back or converts then in equity share and pays
bask.

(d) Bonds: Funds for project are also raised particularly by the public sector
enterprises through bonds. Issues of bonds are to get approval of the concerned
authorities. These bonds can be bought back by the issuing company after completion
of the stipulated period.

         


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(e) Joint ventures: This is another new opening in the project financing through
participation. This includes besides equity participation and in technology transfer
also.

(f) Yon-banking finance company: Yon-banking finance companies undertake a wide


spectrum of financial activities ranging from hire purchase and leasing to pure
investments. There are many types...

R. |quipment leasing companies.


2. Loan companies.
3. Mutual financial companies.
4. Housing finance companies.
5. Investment companies.

(g) Loans from other companies: This is also termed as an inter-corporate loan. This is
mainly to meet short-term needs i.e. mainly working capital requirement or the
repayment of loans, which have become due for repayment, this is short-term loan.

(h) Other sources some are:

Banks, public deposit, financial deposit, foreign direct investments, World Bank loan,
commercial papers, lease financing, Infrastructure development finance company,
Contract financing, finance through special development funds, retention of profit and
ploughing back of money,