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Abstract

Appraisal of promoters and management is probably the most crucial aspect in the entire project appraisal and financing process. Its importance lies in the following: (1) Promoters form the backbone of the project and are the key consideration in appraisal and funding; (2) Their appraisal is the basic factor in predicting the success or otherwise of a project and in deciding the institutional exposure and its extent; (3) In case decided to have an exposure, institutions may stipulate lower debt with higher then generally stipulated equity contribution by the promoters and a higher rate of interest if they have some reservations though not to the extent as to deny participation in the project. Set in this background is this case of four companies, Herodias Motors Ltd, VST Motor Company Ltd, Majuro Auto Ltd and Kinney Bikes Ltd who are going for similar bike projects and have approached a lending institution, NCR Project Finance Corporation Ltd for funding. The focus of the case is on the appraisal and credit rating of their promoters and management by the institution, the resultant varying terms and conditions of institutional financing stipulated and the impact thereof on the financials of the same project but with different promoters. The case demonstrates how a low credit rating of promoters and management may result into a lower leverage in the proposed means of finance, higher burden on the promoters’ resources and burden of relatively higher interest cost on the profitability of the project; (4) The case is meant for MBA students with finance as elective/specialisation area.
Location:
Industry:
Size:
New project costing INR400.00 crore

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Abstract

Appraisal of promoters and management is probably the most crucial aspect in the entire project appraisal and financing process. Its importance lies in the following: (1) Promoters form the backbone of the project and are the key consideration in appraisal and funding; (2) Their appraisal is the basic factor in predicting the success or otherwise of a project and in deciding the institutional exposure and its extent; (3) In case decided to have an exposure, institutions may stipulate lower debt with higher then generally stipulated equity contribution by the promoters and a higher rate of interest if they have some reservations though not to the extent as to deny participation in the project. Set in this background is this case of four companies, Herodias Motors Ltd, VST Motor Company Ltd, Majuro Auto Ltd and Kinney Bikes Ltd who are going for similar bike projects and have approached a lending institution, NCR Project Finance Corporation Ltd for funding. The focus of the case is on the appraisal and credit rating of their promoters and management by the institution, the resultant varying terms and conditions of institutional financing stipulated and the impact thereof on the financials of the same project but with different promoters. The case demonstrates how a low credit rating of promoters and management may result into a lower leverage in the proposed means of finance, higher burden on the promoters’ resources and burden of relatively higher interest cost on the profitability of the project; (4) The case is meant for MBA students with finance as elective/specialisation area.

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Location:
Industry:
Size:
New project costing INR400.00 crore

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