Transcript KPMG Talkbook Full-page

Financial Management and
Management Overview – Tips for
financial modeling
INFRASTRUCTURE & GOVERNMENT
Water PPP: Overview and Training Workshop
February 26-27, 2009
ADVISORY
The importance of the Concessioning Authority to have a good Financial Model
while inviting PPP bids
Understand project financials, and implications for
Tariff / user charges
RISKS
Need for additional revenue sources
Need for financial support (Viability Gap funding)
Risks
Revenue –
Operating Expenses
Potential “negative grant”
Project viability
(compare with WACC)
Test bankability based on project cash flows (Cash Flow
Available for Debt Servicing – CFADS)
Lender ratios (DSCR, LLCR..)
Loan covenants (Debt service reserve….)
Financing Costs
Bankability
Test implication of Risk sharing
(DSCR, …)
Demand variation / Tariff variation….
Inflation
Choice of bidding parameter (fixed, variable,
combination)
Return to
shareholders
Equity return
(compare with CoE)
Scenario analysis to design SPV commitments
Performance levels
Investment commitments
Need for “transfer value” at end of contract
© 2009 KPMG Advisory Services Private Limited, an Indian private limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.
All rights reserved.
1. Structuring the model – think through the business logic to be used
Measuredsales  Consumption not unmeasured Actualdemand
Growth Projections need
to apply to actual demand
Actualprojecteddemand- Projectedunmeasuredconsumption  Billed Demand Or, work on a Cash inflow
minus, basis
Billed demand- T echnicalloss  Waterintakerequirement
Performance levels
Periodicity of the model
• Quarterly, Annual, Combination
• Linkage with variables like inflation
Capex
Demand
Inter linkages between primary variables and dependent
variables important to avoid unrealistic scenarios
© 2009 KPMG Advisory Services Private Limited, an Indian private limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.
All rights reserved.
2. External variables need to be factored carefully
ILLUS TRATIVE
Capital Expenditure in INR million
Base
cost
Design & Supervision costs
100
Detailed construction costs
300
Pipelines
75
Meters
75
Water treatment plant
50
Storage tanks
50
Detailed Engg. & Const. management
50
Other Installations
50
Total
450
Inflation
Taxes
Total
Interest during Construction
Financing costs
TOTAL PROJECT COST
Capex schedule on timeline important for projects which have multiyear construction period
Similarly, consistency in inflation assumptions across construction
and operations period important to understand IRR, Discount rate,
WACC, etc
© 2009 KPMG Advisory Services Private Limited, an Indian private limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.
All rights reserved.
3. Modeling of initial cash gaps needs careful consideration and will impact
financing assumptions
ILLUS TRATIVE
CFADS Vs P+I
35,000
CFADS
Principal
25,000
Interest
20,000
9,909
10,000
9,441
8,633
7,475
5,806
3,908
8,465
8,517
8,350
8,247
2022
2023
2024
2025
2016
8,439
2021
2015
5,557
8,256
2020
1,987
7,313
2019
1,546
6,419
2018
1,728
01,047
2014
9,154
2017
8,830
5,000
10,061
10,108 10,291
1,674 1,005
5,292 5,221
2027
15,000
2026
INR MN
Cashflows inadequate for
interest payments in the
initial years.
30,000
Cashflows available for debt service (Rs. Million)
Options that could be considered and modeled in the financial model (not exhaustive)
• Equity infusion in the initial operation period
• Longer tenure of debt drawdown
• Moratorium on interest payments?
• Subordinate-debt financing with bullet repayment of principal and interest
Lender interface useful to understand debt servicing flexibility available
© 2009 KPMG Advisory Services Private Limited, an Indian private limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.
All rights reserved.
4. A user-friendly output which supports sensitivitity analysis and aids decision
making is important
Key Inputs
ILLUS TRATIVE
Key Outputs
© 2009 KPMG Advisory Services Private Limited, an Indian private limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.
All rights reserved.
Presenter’s contact details
Manish Agarwal
Executive Director
KPMG in India
+91 9967574800
[email protected]
www.in.kpmg.com
© 2009 KPMG Advisory Services Private Limited, an Indian private limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.
All rights reserved.