Shri Vishal Gupta SBI Capital Markets Limited

PROJECT FINANCE FOR STEEL PROJECTS

Complete Solutions Provider in Investment Banking

Corporate Finance Project Finance

FINANCING OPTIONS

Full Recourse

To Sponsors

Limited Recourse

To Sponsorsonly under

pre-determined circumstances

Non Recourse

Recourse only to Project Cash

Flows &

Project Assets

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TYPICAL STRUCTURE

SPONSORS

SPV

RAW MATERIALS

Coal/ Coke

Iron Ore

LENDERS

Product Offtake/ Marketing

EPC Arrangement

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PROJECT FINANCE: CHARACTERISTICS

�� Project set up through an SPV Project set up through an SPV �� Borrower has no historical financial strength nor Borrower has no historical financial strength nor

any assetsany assets�� Project stands financially independent Project stands financially independent

�� lenders have limited/no recourse to existing lenders have limited/no recourse to existing operations and cash flows of the promotersoperations and cash flows of the promoters

�� Large capital costs with high D/E ratioLarge capital costs with high D/E ratio�� Typically 1.5:1 can go upto 2:1Typically 1.5:1 can go upto 2:1

�� Debt funds required for long durationDebt funds required for long duration�� Banks are comfortable with door to door maturity Banks are comfortable with door to door maturity

of 10 yearsof 10 years�� Long gestation periodsLong gestation periods�� Highly structured and complex Highly structured and complex

documentationdocumentation

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PROJECT FINANCE : RISK� Promoter/ Sponsor Risk� Completion Risk� Raw Material/ Power Availability Risk� Market Risk� Infrastructure / Logistics Risk� Environmental Risks� Technology Risk� Financing Risk� Operation & Maintenance Risk� Interest rate risk� Foreign exchange risk� Force Majeure� Legal Risk� Political Risk

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Usual Source of Finance

� Rupee Term Loans� Export Credit Agency (ECA)� External Commercial Borrowings (ECB)

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Bank Finance: Asset Liability Mismatch

� Banks usually carry short term liabilities. The Project finance loans are long term in nature, usually 10 years.

� The present financing structure is usually 60% debt and 40% equity, the debt coming from FIs and Banks.

� To address Asset Liability Mismatch related issues, the worldwide practice is to have bond financing either at initial stage or more often project finance being taken out by bond financing after commercial operation.

� Advantages of bond financing:- rating required, better disclosure.- closer monitoring, better discipline in reserves

maintenance.- better discipline required by project company because

cost overrun, delays etc would lead to problems.- Exit option available to the Banks/FIs.

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Bank Finance: Other Major Issues

� Banks have an expertise and appetite for appraising and taking on credit risk.

� The market risk associated with cyclicality of the commodities market would need to be addressed.

� Project Completion risk and cost overruns need to be addressed either by a proper contractual structure or promoter undertakings

�� Taxes & duties Taxes & duties �� withholding taxes, stamp duty in various states & structure of withholding taxes, stamp duty in various states & structure of

equitable & legal mortgageequitable & legal mortgage�� Approvals and permissions from various authoritiesApprovals and permissions from various authorities� Land Acquisition issuesAcquisition issues

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CREDIT ENHANCEMENT MEASURES

�� Escrow AccountsEscrow Accounts

�� Trust & Retention AccountsTrust & Retention Accounts

�� Debt Service Reserve AccountsDebt Service Reserve Accounts

�� Financial CovenantsFinancial Covenants

�� Pledge of Shares of PromotersPledge of Shares of Promoters

�� Assignment of Contracts & ReceivablesAssignment of Contracts & Receivables

�� Mortgage / Hypothecation of AssetsMortgage / Hypothecation of Assets

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� Was incorporated in 1986 as a wholly owned subsidiary of the State Bank of India, country’s largest

domestic investment bank. In January 1997, fresh equity shares were issued to Asian Development Bank

(ADB) and ADB now holds 13.84% stake in the equity of SBICAPS.

� Being a part of the State Bank Group, SBICAP enjoys full support from SBI & its Indian associates and its

overseas subsidiaries. This has helped it in developing direct links with several Multilateral Agencies and

International Financial Institutions.

� No.1 Fund Mobiliser in the Country, raised over Rs. 1,15,490 crores through public, rights issue and

private placement of equity & debt during the past 5 years.

� Pioneer in Securitisation: Accomplished the first true Securitisation in the power sector in the country

and the only investment bank to be co-opted on the RBI’s Working Group on Asset Securitisation as a

Special Invitee.

� Pioneer in Privatisation in the Country.

� Advisor to Government of India on crucial issues like studying India’s Power requirements and Role of

Central PSUs, Securitisation of SEB overdues and the only non-lending institution to be a participant in a

nodal committee set up by the Ministry of Power.

� Strong relationship with the Government, having worked for several fund-raising, strategic sale and

other advisory transactions for Government of India and several State Governments.

SBICAP: India’s Premier Investment Bank

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Action Ispat & Power Ltd.

Setting up Sponge Iron

Plant, Captive Power Plant, Ferro

Alloys Plant & Coal Washery

Aug 2008

Advisor

Mackeil Ispat & Forging Ltd.

Setting up a 36,000 TPA Forging Unit

Dec 2008

Advisor & Debt Arranger

Conros Steels Pvt Ltd

FB and NFB working Capital

Limits

Nov 2008

Advisor

Bramhani Industries Ltd.

Setting up 1.9 MTPA Integrated

Steel Plant

Jan 2009


BMM Ispat Ltd.

Setting up of pellet plant. Coke oven plant and captive power

plant at Hospet, Karnataka

Sep 2008

Advisor

Bhushan Power & Steel

Limited

Capacity Expansion by 0.8

MTPA

Jan 2009

Advisor

Bhushan Steel Ltd.

Setting up of 300,000 MTPA Large Diameter ERW Pipes Plant

Sep 2008

Advisor

Jewels Seamless Ltd.

Setting up of 150,000 MTPA SS

Wire Rod Plant

Sep 2008

Advisor

SBICAP STEEL CREDENTIALS

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Topworth Pipes & Tubes

Limited

Setting up 340,000 MTPA

Steel Pipes Plant

May 2008

Advisor

Uttam Galva Metallics Ltd.

Setting up 550,000 MTPA Pig

Iron Plant

Jul 2008


Jindal Steel & Power Ltd.

Setting up 2 MTPA DRI Plant

Jun 2008


JSW Steel Ltd.

Valuation of 6 Iron Ore Mines in

Chile

May 2008

Advisor


Setting up of 4 MTPA Integrated

Steel Plant

Jun 2008

Advisor

New Tech Forge &

Foundry Ltd.

Enterprise Valuation

Aug 2008

Advisor

JSW Steel Ltd.

Capacity Expansion by 3.2

MTPA

Jul 2008



Setting up 270 MW Captive Power Plant

Jul 2008



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JSPL – ECA

Financial Appraisal for 4

MTPA Steel Plant for ECA Lenders

Oct 2007

Advisor

Divine Alloys & Power Co.

Ltd.

180000 TPA Mini Integrated Steel

Plant

2008

Advisor


Setting up of 1.2 MTPA Plate Mill

Nov 2007


s

SKS Ispat & Power Ltd

Setting up 18 MVA Ferro Alloys

Plant &30 MW power Plant

2008


Hazira Plate Limited

Setting up 1.5 mn MTPA Plate Mill

Jan 2008

Advisor

Neelachal Ispat Nigam

Ltd.

Integrated Steel Plant an Iron Ore

Mines

Mar 2008

Advisor

JSW Steel Ltd.

Appraisal for development of 4 iron ore mines in

Chile

Apr 2008

Advisor

Kharkia Steels Pvt. Ltd

Setting up Rolling Mill of Capacity 1,00,000 TPA

Mar 2008



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Setting up of 2 MTPA DRI Plant

Sep 2007

Advisor

Action Ispat & Power Ltd.

Setting up of Sponge Iron &

Steel Billets Plant

May 2007

Advisor

Jindal Stainless Steel

Ltd.

Orisa – Phase II Stainless Steel

Plant

Aug 2007

Arranger

Asian Ispat FZC

Setting up 0.23 MTPA Galvanizing

Plant at Dubai

May 2007

Advisor

Maheshwary Ispat Ltd.

Integrated Steel Plant, Orissa

2007


Corporate Ispat Alloys

Ltd.

Setting up of 4 Lakh TPA HR Steel Plant

Sep 2007

Advisor

Brahmani River Pellets

Ltd.

Setting up of 4 MTPA Iron Ore

Pelletisation Plant

Sep 2007


Magnum Steels Ltd

Setting up of Integrated Steel

Plant

Sep 2007

Advisor


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Atibit Industries

Company Ltd.

Pellet Plant, Jharkand

2007

Advisor

Bhubee Profiles Pvt.

Ltd.

Hot Rolled Plate Manufacturing Facility, Orissa

2007


s



2006


JSPL – Bolivia Project

Bid Advisory –Bidding for

Concession of Iron ore Mines in

Bolivia

May 2006

Advisor

Essar Steel Sharjah FZC

Rebar Mill Project

2006

Advisor

Adhunik Alloys & Power Ltd.

Steel Plant, Jharkhand

2007

Advisor

SAIL-Malvika Steel Financial

Viability

Financial Viability for acquisition of Malvika Steel by

SAIL

Jan 2007Advisor

Saravana Alloy Steels

Pvt. Ltd.

Setting up TMT Bars & Sponge

Iron Plant

Feb 2007

Advisor


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Maithan Ispat Ltd.

Integrated Steel Plant

2006

Advisor

Ind Synergy Ltd.

Setting up of Phase III of steel

Project

2006

Advisor

IFCI – Nova Iron & Steel Valuation

Business Valuation of Nova Iron & Steel Ltd.

for IFCI

Sep 2006

Advisor

JSPL –Raigarh Plate

Mill

Setting up of 0.9 MTPA Plate Mill

Dec 2005

Advisor

s



2005


Gangotri Iron & Steel Co.

Ltd.TMT Bar Plant,

Bihar

2006

Advisor

Adhunik Mettaliks Ltd.

Integrated Steel Plant, Orissa

2006


Mangilal Rungta

95000 TPA Ferro Alloy Plant, Orissa

2006

Advisor


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Essar Steel Ltd.

1.5 MMTPA Plate Mill Project

2005Advisor & Debt

Arranger

BMM Ispat Ltd.

1.2 MMTPA Pellets Plant

2005

Advisor


1.75 MT Mild Steel Plant

2005


Bhushan Ltd.

1 million integrated Sponge Iron Project

2005

Advisor

Maheshwary Ispat Ltd.

Integrated Steel Plant

2005


JSW Steel Ltd.

Expansion of Integrated Steel

Plant

2005

Debt Arranger

Neelachal Ispat Nigam

Ltd.Refinancing of High cost Debt

2005

Debt Arranger

Electrotherm (India) Ltd.

Mini Steel Plant, Kutch, Gujarat

2005

Advisor


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THANK YOU

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Shri Vishal Gupta SBI Capital Markets Limited

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