Abordaje del EMD no traccional con afectación central

a. Risks involved

The specific risks involved with infrastructure are:

k Construction Risk- Technical designs, cost over-run etc.

k Operating Risk - Cost and availability of operating inputs, bottlenecks etc.

k Regulatory Risk- As most of the infrastructure projects come under the category of public utilities; they are highly susceptible to sector specific regulatory policy decisions.

k Funding Risk- Mismatch with regard to liability sources and investment deployment of the promoter, adverse interest movements (floating or fixed) and even high exchange risk.

k Political Risk- Foreign investment does not come forth to developing countries mainly because of political risk etc. may result in funding risk.

b. Concepts of financing

The following concepts have emerged in management of infrastructure projects.

L BOT (Build, Operate and Transfer) - It refers to construction by a private party/consortium, which finances, operates and maintains an infrastructure for a specified period. Thereafter, it transfers the project to an identified public agency or back to the Government itself. BOT may have a period of transfer between 10 and 25 years.

L BOOT (Build, Own, Operate and Transfer) - It is like BOT but the period of transfer could be upto 50 years.

L BOO (Build, Own and Operate) - Under this the right to construct, operate and own remains with the private party. The infrastructure does not get transferred to the public sector.

L BOLT (Build, Own, Lease and Transfer) - Public agency / Government invites private sector to build / manufacture and lease the constructed asset to the Public agency / Government. The later will pay lease charges (rentals) during lease period. On expiry of lease period, the asset is transferred to the Public agency / Government.

c. Funding structure

The funding structure may take an equity route and / or mezzanine form i.e., a maximum of financing instruments including equity, bonds, subordinate debt, senior debt and bridge loan etc. Equity may be offered through special purpose funds by multilateral agencies like International Finance Corporation, Asian Development Bank, construction contractors, and suppliers of capital equipment or through local equity markets. Another suggested method of financing is that initial borrowing may be for ten years, which may be refinanced by another round of borrowing.

d. Mechanism of Escrow account

The work involved in infrastructure financing has 3 phases - Pre construction, Post construction and Operational phase. In the pre-construction stage, financing banks manage the risk by having full recourse to the promoters, contractors and the suppliers. In the post-construction stage, banks depend only on cash flows committed by lenders. To protect against adverse events, banks have devised Escrow Account mechanism through which the cash inflows are pooled and on which banks have first charge towards recovery of their loans.

e. Steps involved in processing infrastructure finance proposal Banks financing infrastructure projects have to undertake the following:

L Banks should ensure that they have the requisite expertise for appraisal of technical feasibility, financial viability and bankability of the project with particular reference to risk and sensitivity analysis. They can appraise the project with in house experts and / or external consultants.

L Financing offer which involves the development and application of a financing concept to the borrower with a view to capturing lead mandate.

L After the mandate is awarded the financial structure is fine-tuned in consultation with other lead banks. Any participation with the borrower should result in what is called a term sheet which set out the basic details of the financing and serves as a basis on which underwriting of the loan amount by lead banks is possible.

L Documentation

L Syndication

L Funding according to draw down schedule and financial supervision and monitoring. OR

6. (a) Elaborate with sufficient details functions of a Finance Manager. (8)

The Finance Manager’s main objective is to manage funds in such a way so as to ensure their optimum utilisation and their procurement in a manner that the risk, cost and control considerations are properly balanced in a given situation. To achieve these objectives the Finance Manager perform the following functions:

(1) Estimating the requirement of Funds: Both for long-term purpose i.e., investment in fixed assets and for short term i.e., for working capital. Forecasting the requirements of funds involves the use of techniques of budgetary control and long-range planning.

(2) Decision regarding Capital Structure: Once the requirement of funds has been estimated, a decision regarding various sources from which these funds would be raised has to be taken. A proper balance has to be made between the loan funds and own funds. He has to ensure that he raises sufficient long-term funds to finance fixed assets and other long-term investments and to provide for the needs of working capital.

(3) Investment Decision: The investment of funds, in a project has to be made after careful assessment of the various projects through capital budgeting. Assets management policies are to be laid down regarding various items of current assets. For e.g. receivable in co-ordination with sales manager, inventory in co-ordination with production manager.

(4) Dividend Decision: The finance manager is concerned with the decision as to how much to retain and what portion to pay as dividend depending on the company’s policy. Trend of earnings, trend of share market prices, requirement of funds for future growth, cash flow situation etc., are also to be considered. (5) Evaluating Financial Performance: A finance manager has to constantly review the financial performance of the various units of organisation generally in terms of R.O.I. Such a review helps the management in seeing how the funds have been utilised in various divisions and what can be done to improve it.

(6) Financial negotiation: The finance manager plays a very important role in carrying out negotiations with the financial institutions, banks and public depositors for raising of funds on favourable terms.

(7) Cash management: The finance manager lays down the cash management and cash disbursement policies with a view to supply adequate funds to all units of organisation and to ensure that there is no excessive cash.

(8) Keeping touch with Stock Exchange: Finance manager is required to analyse major trends in stock market and their impact on the price of the company share.

6. (b) Classify and explain the kinds of Capital Investment proposals. (7)

Apart from the actual generation of ideas, the first step in the capital budgeting process is to assemble a list of proposed new investments, together with the data necessary to appraise them. Although practices vary from firm to firm, proposals dealing with asset acquisitions are frequently grouped according to the following four categories:

1. Replacements.

2. Expansion: Additional capacity in existing product lines. 3. Growth: New product lines

4. Other (for example, pollution control equipment)

These groupings are somewhat arbitrary, and it is frequently difficult to decide the appropriate category for a particular investment. In spite of such problems, the scheme is used quite widely and with good reason. Ordinarily, replacement decisions are the simplest to make. Assets wear out or become obsolete, and they must be replaced if production efficiency is to be maintained. A firm has a very good idea of the cost savings to be obtained by replacing an old asset, and it knows the consequences of non-replacement. All in all the outcomes of most replacement decision can be predicted with a high degree of confidence. Examples of the second investment classification are proposals for adding more machines of the type already in use or the opening of new branches in a nation-wide chain of food stores. Expansion investments are frequently incorporated in replacement decision. To illustrate, an old, inefficient machine may be replaced by a large and more efficient one. A degree of uncertainty sometimes extremely high is clearly involved in expansion but the firm at least has the advantages of examining past production and sales experience with similar machines or stores.

When it considers an investment of the third kind, growth into new product lines, little, if any, experience is available on which to base decision.

The ‘Others’ category is a catchall and includes intangible. An example is a proposal to boost employee morale and productivity by installing a music system. Mandatory pollution control devices, which must be undertaken even though they produce no revenues, are another example of the other category. Major strategic decision, such as plans for overseas expansion or mergers, might also be included here, but more frequently, they are treated separately from the regular capital budget.

7. A review made by the top management of ABC Ltd. which makes only one product, of the result of