1. INDUSTRY INTERNSHIP PROJECT
DEBT SYNDICATION OF CREDIT FACILITIES
SUMEDHA FISCAL SERVICES LIMITED
BY :
B.A NELSON ANTHTONY
2B3-05
BIFAAS
2. CONTENTS
• Introduction
• Industry Profile
• Company Profile
• Review Of Literature
• Data Analysis
• Findings And Suggestions
• Learnings
3. Introduction :
Debt Syndication is the process of distributing the money to be
advanced in , generally a large loan to a number of Financial Institutions .
It’s commonly used when the loan required in order to fund a company or
save a company from bankruptcy .
By employing debt syndication , several banks , investment firms or other
companies share both the profits and the risk of making a large loan .
A decline in the number of available lenders has complicated the
syndication process .While banks are often the primary lenders, they can
be involved in deals with less outlay , thus reducing their risk.
4. Objectives :
• To Understand the conceptual framework of Syndicated Loans.
• To analyze the process of Syndicated Loan processing.
• To apply the learning on a case situation.
• To make suggestions based on the finding of the study.
5. Scope :
• The syndicated loan market allows a more efficient geographical and institutional
sharing of risk. They allow the sharing of credit risk between various financial
institutions without the disclosure and marketing burden that bond issuers face.
• For junior banks, participating in a syndicated loan may be advantageous for several
reasons. These banks may be motivated by a lack of origination capability in certain
types of transactions, geographical areas or industrial sectors, or indeed a desire to
cut down on origination costs.
• Project finance deals are non-recourse and therefore depend on the isolated and
assigned cash flow from the project. With no recourse to project sponsors, in case of
default, the bank that spread the risk by joining many syndicates faces a lower risk
than one that finances projects individually.
6. Limitations:
a) The study duration (summer in Corporate Office) is short.
b) The analysis is made for projected data .
c) Limited interaction with the concerned heads due to their busy
schedule.
d) The findings of the study are based on the information
retrieved by the selected unit.
e) Ratio itself will not completely show the company’s good or
bad financial position.
f) Working as a trainee for a period of two months the company
was reluctant to reveal its complete information .
7. Methodology :
• The Primary data has been collected from Personal Interaction with
Assistant General Manager (Mr. Venu) .
• The secondary data has been collected in the form of financial statements
of the business entities concerned. Apart from the financial statements of
the business entities the secondary data has also been collected from
various websites related to the research topic.
8. Industry Profile :
• Indian financial services industry has been through the toughest of the times and yet
stands strong and robust among the world economies. Having a deep impact of the far-
reaching changes in the Indian economy since liberalization, the new face of this
industry is evolving in a strong, transparent and resilient system.
• India's syndicated loans totaled $14.1 billion for the period January-May this year,
highlighting one of the few nations to post a 9% year-on-year volume increase (in
proceeds) over the corresponding period in 2008.In fact, India is the only country other
than Spain to have registered an increase in borrowings till May this year. he global
syndicated loan market totaled more than $4.5 trillion in 2007, an increase of 13% over
2006 and 32% over 2005. The largest market was the United States, with $2.1 trillion in
loan activity, an increase of more than 20% over 2006. The second largest market was
the United Kingdom, with $376.3 billion in syndicated lending.
9. • Over the last few years, financial markets have witnessed a significant
broadening and deepening of service baskets with the introduction of
several new instruments and products in banking, insurance and capital
markets space.
• The sector was opened up to new private players including foreign
companies who embraced international best practices and modern
technology to offer a more sophisticated range of financial services to
corporate, retail and institutional customers.
• Financial sector regulators too have been visionaries to ensure that
new regulations and guidelines are in tandem with global norms. These
developments have given a robust boost to the development and
modernization of the financial services sector in India.
10. Company Profile : Sumedha Fiscal Services Ltd. (SFSL) is a front ranking
financial services company incorporated in the year 1989. Since inception, their
journey has been extremely focused and demanding.
The company offers a wide bouquet of services ranging from Corporate Finance,
Equities, Commodities, Insurance, Wealth Advisory, Portfolio Management, Personal
Finance, Currency Futures, Investment Banking and Institutional Broking Services.
SFSL ventured into Merchant Banking and was initially registered with SEBI as a
category III Merchant Banker which later on got upgraded to category I. SFSL came out
with a public issue in 1995 and in 1996 Capital Resources International ltd.
(CRIL) group company started stock broking activity as member on NSE in the capital
market segment and as dealer of OTCEI. CRIL was merged with SFSL with effect from
1998 to have synergies in operations, operational efficiency and higher net worth.
Started in Kolkata, it gradually expanded to other cities with a pan India presence with
currently branches at eight locations namely Bangalore, Guwahati, Mumbai, Jaipur,
Chennai, Ahmadabad, Delhi and Hyderabad.
11. Value Proposition :
• The companies Evolution is the result of the alertness and ability to adapt the
need of changing the World.
Approach :
• Focus on creating long term relationships – a trusted partner
• Significant percentage of business contributed by repeat clients or their
referrals.
Execution Orientation
• High quality execution by an experienced team of professionals.
Professional Integrity
• Strong emphasis on confidentiality and integrity in a sensitive business
environment.
Track Record and Experience
• Proven Expertise in analysing and advising on various business and financial
models.
• Ability, experience and creativity to structure result-oriented financial
solutions.
12. .
TEAM SUMEDHA :
Led by the Chairman, Mr. R.L. Gaggar, the eminent solicitor, the SFSL team today
has over 70 professionals from various spheres of finance, taxation, law and allied
fields. The Board and the Senior Management Team comprises of eminent
members like Dr. Basudeb Sen, Mr. A C Varma, Mr.Shailesh Haribhakti , Mr. Vijay
Maheshwari, Mr. Bijay Murmuria, Mr.Bhawani Shankar Rathi, Mr. Prashant Panda ,
Mr. Anil Birla and Mr. Rajesh Gupta .
Mr. R. L. Gaggar, Chairman of the Board, is a front ranking and
eminent solicitor. He is on the Board of many Blue-Chip Companies .
Today, he ranks among the foremost legal brains in the country and
his expertise and pre-eminence has been of considerable support to
us.
13. Services :
Merchant Banking
Category I Merchant
Banker
Mergers & Takeovers
Equity Placement
Portfolio Resolution
of Stressed Assets
Debt Syndication
Financial
Restructuring &
Negotiated Settlement
of Dues
Stock Broking – NSE
Capital Market &
Derivative & Currency
Member, OTCEI Member
Distribution Services
(RBI Bonds, Capital
Gain Bonds, Mutual
Funds)
Commodity Market
Broking (through
subsidiary) – MCX
Member.
Life Insurance Agency
Business ( through
subsidiary)
KEY
OFFERINGS
14. Review of Literature :
• Syndication helps lenders to avoid capital requirement constraints imposed by
regulators (Simons [1993]) as well as limit excessive exposure to individual
borrowers.
• A syndicated loan is a loan issued to a firm jointly by more than one financial
institution. As Hitchings (1994) notes, “. . . it is fundamental to syndicated lending
that the terms and conditions of the loan are similar for each of the lenders.”
• The pricing of syndicated loans has become more flexible by adding performance
pricing features, which represent a significant shift from the more established use of
financial covenants. In contracts that include only financial covenants, the lenders
can increase the interest rates only when financial performance deteriorates such
that a covenant violation occurs (Dichev and Skinner [2002]).
15. Analysis
Financial Analysis :
Cost of the project is Rs.5359.88 Lakhs
The cost of this new project comes to Rs. 5359.88 lakhs as per our estimates. Major
portion of the costs goes towards plant & machineries (Rs.3748.51 lakhs), Buildings
(Rs.735.00 lakhs). Other big cost components are interest during construction (Rs.460.96
lakhs), preliminary and pre-operative expenses (Rs.108.00 lakhs), contingency (Rs.53.80
lakhs), and land & land development charges (Rs.220.00 lakhs). Majority of the
Equipment and machineries will be purchased indigenously, and the company has
Procured quotations for majority of them. We have verified the costs & found them
reasonable .
Bank finance shall be 65.30% of the total project cost
The project will be funded by Equity Contribution and Term Loan from Bank. The
contribution of bank will be 65.30% while that of the equity will be 34.70%. Bank will be
financing Rs.3500.00 lakhs and equity contribution will be Rs.1859.88 lakhs. The debt
equity ratio for this project will be 1.88.
16. Term Loan shall be repaid in 32 Quarterly installments
• Repayment will be done in 32 Quarterly installments (from Quarter 3 FY 2013to Quarter
• 2 FY 2021) in balloon payment format. The moratorium period is taken as 21 months
• (from April 2012 and ending in December 2013).
DSCR is comfortable in the base case :
• The DSCR (Gross) and DSCR (Net) for the firm is at comfortable level at 1.77 and 2.18
respectively. The project is tested by us in two scenarios and it is found that the Gross
DSCR is above 1.45 in all the scenarios.
Scenarios Gross Net
1 DSCR in Base Case 1.78 2.20
2 Scenario-1(decr in sales by 5%) 1.48 1.78
3 Scenario-2(incr in R.M cost by 5%) 1.56 1.92
17. Key Ratio’s & Levels
Particulars Low Risk Medium Risk High Risk
Current Ratio > 1.40 1.20 - 1.40 < 1.20
Tol/Tnw < 2.00 2.00 – 3.50 < 3.50
Interest Coverage > 3.50 2.00 – 3.50 < 2.00
PAT/Sales % > 10.00 4.00 -10.00 < 4.00
Inventory (no of
days)
< 60 60 – 90 > 90
Debtors (no of days) < 45 45 - 90 > 90
Debt- Equity Ratio < 1.25 1.25 -1.75 > 1.75
DSCR ( fr TL) > 2.00 1.25 -2.00 < 1.25
18. Data Analysis :
• The Projected Net Working Capital of the company is increasing ,the year 2013 has
NWC of 132.14 lakhs the company has Rs 352.65 Lakh N.W.C for the year 2014 i.e
constantly increasing for all the projected years up to 2021. This means the
company is in a positive position & N.W.C has improved very fast as compared to
the previous years which show liquidity Position of the company and it is having
more & sufficient working capital available to pay off its projected current liabilities
• In the projected year of 2013 the current ratio was 1.39 and in 2014 the current
ratio was increased to 1.52 and there is a constant growth in CR . The current ratio
is above the standard ratio i.e. 1.33 .Hence it can be said that there is enough
Projected current assets in this company to meet its current liabilities
• The projected inventory and receivables to Net sales is increasing year to year .
• There is an increase in both sales and total tangible net assets . so the average
collection period is decreasing year by year. That shows that recovery from debtors
is improving.
• A high working capital turnover ratio indicates efficiency in utilization of resources
and the ratio has improved
21. Findings:
• Current Ratio is in the increasing trend & comfortably above 1.33. TOL/ TNW is
in the decreasing trend as the loan is being repaid.
• PAT is showing increasing trend due to stabilised cost structure and decreasing
interest expense.
• PBDIT/Interest is continuously increasing due to regular payment on loan and
interest amount.
• Operating Cost to sales is showing a decreasing trend.
• Bank Finance to Current Assets is on the decreasing trend.
22. SWOT ANALYSIS
Strenghts :
• The raw material required for the project is
locally available.
• The company is ordering equipment from
reliable suppliers
• The company is planning to use latest
technology for production
• Most of the generation of power will be used
for the captive purpose of the company.
Weakness :
• Even though the promoters of the company
are experienced in cement sector they
does not have expertise in running the
captive power plant. The firm plans to over
come this by hiring professionals to run this
operation.
Opportunities :
• The company can avail carbon credits and
subsidies from Ministry of New and
renewable energy. For financial calculations
we have not considered the advantages
gained from both these sources.
• In future the company can also explore the
option of selling the power to the local
electricity board which can be a additional
source of income
Threats :
• Changes in government policy on captive
power and its consumption will affect the
working of the unit. However this will affect
all the players in the industry.
• The rising prices of steel which is a key input
in the manufacturing of boilers can
increase the cost of the project. The company
needs to effectively negotiate with
the suppliers for a discount to reduce the
additional burden.
23. Recommendations :
• Although the company has collected quotations for all the equipment like boiler
& turbine, some of them are more than year old and there are chances of price
escalation. In this case the company has confirmed to Sumedha that the
increased cost shall be borne by the company.
• As the company is new to the field of the power generation they should appoint
experienced professionals to run the operations of the Co-generation plant. This
will help them in efficiently managing the project. Also the company can explore
the option of appointing an operations and maintenance company to manage
the operations of the captive power Plant.
• The firm should obtain all the permissions (pollution control board, inspector of
boilers, factories department) well before the commercial operations of the
company starts. Any delay would lead to obstruction in the project
implementation schedule which is not desirable for any project.
• The firm should stick to the project implementation schedule. Delay in
implementation may lead to cost escalation as well as delay in the generation of
the savings.
24. Learnings :
• The culture of the Corporate Office
• Understanding the Customer needs and providing the customer with delight
• Understanding Financial Statements and the purpose of using it
• Assessment of Term Loan and Working Capital
• Delivering the task with in the given time .
