Average DSCR

How to calculate average DSCR(Debt Service coverage ratio)

There are two ways to calculate ADSCR

1.   Take average of each year DSCR (Cash flow available for Debt servicing(PAT+ Depreciation + Interest + Deferred Tax + Lease Rental income)/ (Interest payment in year + Principal repayment in the year)
2. Divide the total Cash flow available for Debt servicing over the life of the loan by sum  total Interest payment and Total Principal repayment)

The first method give equal importance to each period but second method treats each element by the relative importance of the sum of principal and interest

Both method with give same result if denominator is same for all year i.e. / (Interest payment in year + Principal repayment in the year) but result will be different in case of differential repayment

So it is all preferable to calculate ADSCR using second method as

1. It does not treats all period as equally important
2. It does not cover the distortions due to differential repayment
3. It is more accurate representation of average

SBI Macquarie infra fund acquires road project in India

SBI Macquarie infra fund acquires road project in India

Infrastructure bottlenecks

We are hearing a lot about slowdown in infrastructure investment and in GDP growth in last couple of years. I have tried to analyse sector wise key concerns in infrastructure

Power sector- In the last few years there have been not a single Power purchase agreement (PPA) signed by any discom and due to lower demand the merchant tariffs have decreased a lot. This has impacted the topline of the power producers. Moreover due to increase in coal price of imported coal EBIDTA margin of companies has decreased. The problem is more for power plants which are located far away from mines and ports and this increases the transportation cost ( presently coal transportation cost is about Rs 1~1.5 per tonne per km). 

Hydro power projects- hydro power projects are dependent on rainfall. moreover many hydro projects are facing delay in implementation due to geology risks. 

key steps required to increase investment in infrastructure:

1. Granting external commercial borrowing for takeout financing and refinancing of rupee loan

2. Restricting the provising requirement due to delay ( esp hydro projects) to 2% from the existing 5%

3. Ensuring Gas supply to gas based power plants

4. Effective and prompt dispute resolution mechanism for road sector projects

5. Allowing Banks to floats infrabonds with tax incentives

Registered vs equitable mortgage

Mortgage is a transfer of specific interest in the property owned by a person in favour of the creditor

Registered mortgage- Mortgage as per the Transfer of property act section 58(b) is registered mortgage, where the mortgagor registers the mortgage with a Sub Registrar.

In case of Simple/Registered Mortgage

•  Mortgage Deed is registered
• Stamp duty on deed and registration fees are required to paid
•  Possession of the property is not given to the mortgagee (bank)
• Mortgagee has right of foreclosure i. e. get the property sold for recovery of dues

Equitable mortgage - Mortgage as per section 58(f)is a equitable mortgage which is collateral security type of mortgage where only title deeds of the property are deposited with the mortgagor.

Delivery of documents of title to immovable property to creditor or his agent

·         Such delivery at notified town

·         Delivery of documents with intention to create mortgage to secure existing or future debt

·         Needs no registration but needs stamp duty

3 companies evince interest in drawing power from UP's thermal plants

3 companies evince interest in drawing power from UP's thermal plants

Risk-http://www.cea.nic.in/reports/articles/thermal/risk.pdf

Project IRR vs Equity IRR

The project IRR takes as its inflows the full amount(s) of money that are needed in the project. The outflows are the cash generated by the project. The IRR is the internal rate of return of these cash flows. The calculation assumes that no debt is used for the project.

Equity IRR assumes that you use debt for the project, so the inflows are the cash flows required minus any debt that was raised for the project. The outflows are cash flows from the project minus any interest and debt repayments. Hence, equity IRR is essentially the “leveraged” version of project IRR.

Generally Equity IRR is more than project IRR and the equity IRR will be lower than the project IRR whenever the cost of debt exceeds the project IRR. 

Equity IRR and Project IRR