Project Financing at HUDCO

About Project Finance

Uses the project's assets and/or future revenues as the basis for raising funds. Lender accepts revenues from a project as a guarantee on a loan. Based upon the projected cash flows of the project rather than the balance sheets of its sponsors. Raising of funds on a limited-recourse or non-recourse basis. Special purpose entity is created by the sponsors.

Features
Cash Intensive Highly leveraged Independent entity with a finite life Non-recourse or limited recourse financing Allocated risk

Participants
The Development Company The Host Government Banks Facility agent Operator and Off-take Purchaser

About the Company- HUDCO

Incorporated on April 25, 1970 under the companies Act 1956. Public Sector Undertaking Operational Areas:
Project Financing Hudco Niwas Consultancy Research and Training

Research Methodology
Objective of the study
To understand the method of Project Financing at HUDCO. To analyze the process involved in appraising the report with special reference to U.P.S.R.T.C.

Problem statement
To decide whether to accept or reject the Loan Application from Uttar Pradesh State Road Transport Corporation for the purchase and fabrication of 850 bus chassis.

Scope of Study
For the purpose of this study Housing and Urban Development Corporation is selected because it is one of the top most NBFC in Project Finance. The study relates to the period from 2005-06 to 2009-10.

Sources of DATA
For the proposed project work secondary data has been used. The data was collected from the following resources:Books Research Articles Website Database of HUDCO

Limitations
The proposed study on the subject will be undertaken with a view to the following limitations: Project Financing is one of the crucial areas of HUDCO and hence some of the details might not have been revealed. Although the staff and mentor were really helpful, but could not give much of their time due to work constraints. Due to time constraints a deeper study could not be conducted.

Data analysis
Appraisal of urban infrastructure schemes
Institutional Appraisal Financial Appraisal Technical Assessment Demand and Marketability Risk Analysis and Mitigation Legal appraisal

Project Financing of UPSRTC

Project Cost

My Report\Book2 (2).xlsx

Institutional Appraisal
My Report\Book2 (2).xlsx

Reasons for accumulated losses:

Agency suffered huge losses from 1989-90 to 2003-04. The agency has huge operating expense. There was no fare hike from September 2005 to November 2009. There was an increase in the salary of the employees due to the implementation of the 6th pay commission in 2009-10 The rate of tax on spares before imposition of VAT was 4%. However after VAT was imposed in 2005-06 at 12.5%, the agency had to bear the burden of additional 8.5%. Constant increase in the prices of Diesel.

Financial Appraisal
My Report\Book2 (2).xlsx

 Risk Analysis Mitigation Measures Technical Assessment

Findings
Current Rate of Interest is 10.25% UPSRTC has never defaulted. Positive Net cash flows in loan repayment period. Average DSCR is more than HUDCOs norms IRR is 18.70% Payback Period is 2 years and 5 months

Suggesstions
Net Present Value method should be used to make investment decisions. Reasons 1. Projects with same IRR. Project A IRR 18% Project B IRR 18%

2. Value Additivity IRR of the projects do not add up.

CASH CASH NPV AT 10% PROJECTS OUTLAY(RS.) INFLOW(Rs.)

IRR

A B

-100.00 -150.00

120.00 168.00

9.09 2.73

20.00% 12.00%

A+B

-250.00

288.00

11.82

15.20%

3. Projects with negative cash flows

In Rs

Cash Outflow Cash Inflow in 1st year Cash Inflow in second year

(50,000.00)
115,000.00

(66,000.00)

Internal Rate of Return

10% and 20%

Key Learnings
About project financing and step wise appraisal of loans applied for project financing. I made an attempt to learn the various details on which assessment of the project and borrowing agency is done by HUDCO Mainly financial appraisal, legal appraisal, technical appraisal and demand and marketability assessment of the project and that of the borrowing agency is done.

 How the financial assessment of the project and the borrowing agency is carried out. How projected cash flows of the project are made to check the profitability and capability to repay the loan. Project itself is being kept as collateral in project financing and the revenue earned by execution of project are the means of repayment of the loan.