Project Financing & Debt Syndication

A proposal is largely decided before it is submitted. The structure, the numbers and the lender are three choices, and a weak answer to any of them is not recoverable by presentation.

• Capital structure and promoter contribution: What the project can service rather than what the promoter would like to borrow. A debt to equity ratio that leaves no headroom turns an ordinary bad quarter into a default.
• Which lender: A public sector bank, a private bank and a non-banking finance company appraise differently, price differently and tolerate different things. Matching the proposal to the appraiser is most of the work.
• Eligibility and credit support: Udyam registration where the enterprise qualifies, and the credit guarantee schemes available to micro and small enterprises, which can replace collateral the promoter does not have.
• What the appraisal will find: The weaknesses in your own file — a stretched current ratio, related party balances, a thin track record — are better explained in the proposal than discovered in the appraisal note.

The report is read by somebody who has seen a hundred of them and is looking for the assumption that does not hold.

• Assumptions that can be sourced: Capacity, utilisation, realisation and cost each traced to a quotation, an order, a published price or an industry benchmark. A projection with no derivation behind it is the first thing an appraiser discounts.
• Technical and financial feasibility: The project cost with its means of finance, the implementation schedule, and the break-even against installed capacity.
• Sensitivity: What happens to the debt service coverage if realisation falls ten per cent or the input cost rises ten per cent. Presenting this yourself is stronger than being asked for it.
• Five to seven years of projections: Balance sheet, profit and loss and cash flow that agree with one another, which a surprising number do not.

Credit monitoring arrangement data is the format every bank in India appraises in. It is arithmetic, and it is where a proposal is quietly accepted or quietly reduced.

• The working capital assessment: The permissible bank finance computed on the operating cycle — how long stock is held, how long debtors take and how much credit suppliers give — with the margin the bank expects the business to fund itself.
• The ratios that are actually looked at: Current ratio, debt service coverage, total outside liabilities to tangible net worth, and the asset coverage on a term loan. Each has a level below which the proposal does not proceed, whatever else is in it.
• Justifying the requirement: A written explanation of why this business holds stock for that long and gives that much credit. A limit assessed without it is assessed on the bank's assumption rather than on your cycle.
• Consistency with what you have filed: CMA projections that do not reconcile with the audited accounts, the GST returns and the income tax return are the single most common reason a proposal stalls.

Two different facilities, assessed differently, monitored differently and defaulted on differently.

• Cash credit and overdraft: Assessed against stock and book debts, and drawn against drawing power rather than against the sanctioned limit — a distinction that surprises borrowers when the stock statement is late and the account is suddenly irregular.
• Stock statements and periodic returns: Monthly, with the debtor ageing behind them, and the quarterly information the sanction requires. These are not formalities; drawing power and the account's conduct record both come out of them.
• Term loans: Moratorium, door-to-door tenor and a repayment schedule matched to the project's cash generation rather than to a standard template.
• Security and the charge: What is hypothecated, what is mortgaged, what personal or corporate guarantee is given, and the charge registered with the Registrar of Companies within the time the Act allows.

Limits that cost nothing until they are invoked, and cost a great deal at that point.

• Letters of credit: Inland and foreign, with the margin, the tenor and the devolution risk understood before the first one is opened.
• Bank guarantees: Performance and financial guarantees for tenders and contracts, with the expiry and claim period tracked, because an expired guarantee that was never returned remains a live liability in the bank's books.
• Trade finance: Buyer's credit, bill discounting and export facilities, and the exchange control reporting that attaches to the cross-border ones.

Most borrowers meet their lender properly twice: at sanction, and after something has gone wrong. The second meeting goes better when the first relationship was maintained.

• Conduct and classification: Overdue accounts are classified by how long they have run — the special mention categories at thirty, sixty and ninety days, and non-performing beyond that. Classification is now stamped as the days pass rather than at quarter end, so thirty days of inattention has a consequence that is already recorded.
• Review and renewal: Working capital limits are renewed annually on current financials. A renewal allowed to lapse converts a performing facility into an ad hoc one on worse terms.
• Covenants: Financial and non-financial, and a breach reported by you rather than found by them.
• Restructuring: Where the stress is genuine, a resolution under the regulatory framework for stressed assets, with the review period and the inter-creditor process it prescribes. A one-time settlement, a takeover of the facility by another lender, or a rescheduling — each is a different negotiation and each closes off some of the others.