Financial appraisal projects and capital acquisitions tài liệu, giáo án, bài giảng , luận văn, luận án, đồ án, bài tập l...
TRANSACTION ADVISORY SERVICES Financial Appraisal Projects and Capital Acquisitions Presented by Andre Walcott of Ernst & Young Caribbean t TRANSACTION ADVISORY SERVICES Agenda • • • • Introduction The Dilemma Options Analysis Options Analysis Methodology t TRANSACTION ADVISORY SERVICES Introduction Regional Port Authorities are faced with the ever present dilemma of efficiently and effectively utilising the limited financial and natural resources to fulfill the economic and social obligations of the primary shareholder, usually Government. How do you manage this dilemma? t TRANSACTION ADVISORY SERVICES The Dilemma With limited financial resources, the resistance of Government to guarantee financing obligations, and a country of expectations, how do you know which projects to undertake and which capital acquisitions to make at which time? t TRANSACTION ADVISORY SERVICES Options Analysis Options analysis: • • • • examines the economic benefits examines the costs examines the non-financial benefits identifies the risks and their impact on the investment • accounts for other qualitative supporting information t TRANSACTION ADVISORY SERVICES Gov e rnan ce Policy k bac Pay Options Analysis Methodology V NP Risk l/ ia e c c So rvi ery e S eliv D ic teg a r St RO I ironEnv tal men IRR Support Information Co m Pro para jec ble ts ic teg Stra ment n Alig ss Proce er th y O enc s/ g Ag vin nue a S eve R Savi n Reve gs/ nue er Oth ect ir Ind ings/ v Sa enue v Re St ak Su eho pp lde or r t t TRANSACTION ADVISORY SERVICES Approach to Options Analysis There are seven tasks in detailed option analysis: • Identify and categorise the benefits • Identify and categorise the costs • Develop a basis for the estimation of costs and benefits • Information gathering • Estimation of costs and benefits – Cash Flow – Financing Mechanisms • Risk analysis • Assembling the analysis in a business case t TRANSACTION ADVISORY SERVICES Identify and Categorise Benefits t TRANSACTION ADVISORY SERVICES Sub-category Level Category Level BENEFITS CATEGORISATION Internal Economic External Economic Value Score Qualitative Increased Revenue Cruise line Savings/ Revenue Policy (procurement/tender guidelines) Value Score Supporting Information Economies of Scale Other Agency Savings/ Revenue Social/ Service Delivery Comparable Projects Employee Productivity Savings Other Indirect Savings/ Revenue Governance (transparency) Stakeholder Support Strategic (Port specific) Strategic Alignment (Country specific) Environmental The Acquisition/ Construction process Other utilisation Savings Other Relevant Measures t TRANSACTION ADVISORY SERVICES Identify and Categorise Costs t TRANSACTION ADVISORY SERVICES Cost Categorisation Cost categorisation involves more than examining the capital costs but also the operating costs associated with the acquisition or project. t TRANSACTION ADVISORY SERVICES Operating Costs Admin & Management Insurance Legal fees Consultants Contractors Interest costs and debt service Personnel/Staff Expenses Salaries Overtime Training Facilities Expense Repairs and Maintenance Other Expenses Market research t TRANSACTION ADVISORY SERVICES Capital Costs Market Planning Definition of requirement Business Planning Costs Options Analysis Other Asset Cost Other Asset Costs Assembly and training Procurement Charges/Contractor’s fees Financing Charges Consultancy Fees Other Expenses t TRANSACTION ADVISORY SERVICES Information Gathering t TRANSACTION ADVISORY SERVICES Information Gathering Information gathering should commence as soon as possible to ensure that the most reliable data available is collected and collated to facilitate estimates and projections of costs and benefits. t TRANSACTION ADVISORY SERVICES Information Gathering Some of the challenges that may be encountered are: – Inability to locate data – Collection of unreliable data – Changes in project requirements – Changes in alternative options for analysis t TRANSACTION ADVISORY SERVICES Estimating Costs and Benefits t TRANSACTION ADVISORY SERVICES Estimating Costs and Benefits • Identify and categorise future internal economic benefits • Identify and categorise future costs • Select the cost assumption basis • Identify the cost benefit influences • Identify the volume basis for each cost and benefit t TRANSACTION ADVISORY SERVICES t TRANSACTION ADVISORY SERVICES t TRANSACTION ADVISORY SERVICES Basis for Estimating Costs t TRANSACTION ADVISORY SERVICES t TRANSACTION ADVISORY SERVICES t TRANSACTION ADVISORY SERVICES Cash Flow Impact t TRANSACTION ADVISORY SERVICES Cash Flow Impact In assessing the cash flow impact we not only examine the costs associated with the project but also the timing of the projected cash flows. t TRANSACTION ADVISORY SERVICES Cash Flow Impact Scenario 1 – Benefits begin accruing in Year 2: Yr 0 Yr 1 Yr 2 Yr 3 Total Benefits ($m) 20 80 Total Costs ($m) -150 -150 -100 -60 Net Benefits ($m) -150 -150 -80 20 NPV ($m) $43.57 Discount Rate 11% Yr 4 170 -60 110 Yr 5 170 -60 110 Yr 6 170 -60 110 Yr 7 170 -60 110 Yr 8 170 -60 110 Yr 9 Yr 10 Total 170 170 1290 -60 -60 -880 110 110 410 Scenario 2 – Benefits begin accruing in Year 3: Yr 0 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10 Total Total Benefits ($m) 20 80 170 170 170 170 170 170 1120 Total Costs ($m) -150 -150 -100 -60 -60 -60 -60 -60 -60 -60 -60 -880 Net Benefits ($m) -150 -150 -100 -40 20 110 110 110 110 110 110 240 NPV ($m) -$75.82 Discount Rate 11% t TRANSACTION ADVISORY SERVICES t TRANSACTION ADVISORY SERVICES t TRANSACTION ADVISORY SERVICES Financing Mechanisms t TRANSACTION ADVISORY SERVICES Financing Mechanisms Financing Method 1. Internal Sources 2. Government Funding 3. Asset-Backed Financing Options Merits Level of Applicability Demerits Operating Cash Flow Cash Reserves -Less burdensome on Government -Insufficient cash flows generated by the Ports under current operating conditions Government Bond Issue -Consistent with Government’s current savings initiative -Overall cost of borrowing lower with tax-exempt bonds -Attractive to investors with a long-term investment horizon -Can be used in conjunction with other financing methods -Tax exempt bonds, eliminate potential source of revenue -Increases Gov. debt position -Require Gov. guarantees which can strain current borrowing limits -Preserve cash & working capital -Lower debt ratios -Applicable mainly to equipment purchases Operating Leases t LOW HIGH LOW TRANSACTION ADVISORY SERVICES Financing Mechanisms Financing Method 4. Capital Markets Options Merits Level of Applicability Demerits Loans from International Funding Institutions (IFI) -Preferential interest rates -Long repayment periods -Onerous terms and conditions -Long turnaround times -Require Gov. guarantees which can strain current borrowing limits -Increase Gov. debt position Loans from Local/ International Banks -Quicker disbursement times than IFIs -Syndicated loans are available -Can be expensive -Require default assurance from Gov. and can strain current borrowing limits -Typically shorter maturities -Increase debt position on balance sheet, make performance ratios less attractive -If size of financing is significant, lending institution may require head office approval, resulting in delays, increased due diligence etc. t HIGH HIGH TRANSACTION ADVISORY SERVICES Financing Mechanisms Financing Method Options Bonds Sinking Fund Level of Applicability Merits Demerits -Funds disbursed in tranches to match commitments -Attractive to investors with a long-term investment horizon -High transaction costs -Require Gov. guarantees which can strain current borrowing limits -Increase Gov. debt position -For foreign currency denominated bonds, repayments may strain foreign reserves -Balloon payment due at time of maturity -Funds disbursed in tranches to match commitments -Attractive to investors with a long-term investment horizon -Balloon payment financed at start -Capital costs are tax deductible -High transaction costs -Require Gov. guarantees which can strain current borrowing limits -Increase Gov. debt position -For foreign currency denominated financing, repayments may strain foreign reserves t HIGH HIGH TRANSACTION ADVISORY SERVICES Financing Mechanisms Financing Method 6. Pooled Investments Level of Applicability Options Merits Demerits Offshore Real Estate Fund -Lower transaction & overall costs -Quicker turnaround times -Unlimited pool of investment capital -Investors require higher rates of return due to mandated hurdle rates -Investor returns paid in foreign currency will MODERATE/ HIGH strain foreign reserves -Extensive marketing effort required to attract international investors Real Estate Investment Trust (REIT) -Cash inflow upfront -Foreign currency exposure minimised -Investor require higher return rates -Insufficient capital pool available locally/ regionally t MODERATE TRANSACTION ADVISORY SERVICES Financing Mechanisms Financing Method 7. Private Public Partnerships Level of Applicability Options Merits Demerits PPP’s (BOLT, BLT, BOOT, etc.) -Debt burden appears less in the short term -Some risk-sharing with the private sector -Government retains ultimate control of the facility -Off balance sheet financing -Relatively new to Barbados -Complex, require finance expertise to ensure adequate structuring -Higher financing costs due to private investor hurdle rates added to financing costs -Clearly defined project terms and responsibilities required t HIGH TRANSACTION ADVISORY SERVICES Risk Analysis t TRANSACTION ADVISORY SERVICES Risk Analysis • • • • • • Risk analysis is about developing an understanding of the risk. Some of the major risk factors for Port projects are: They require major political involvement The project budget is overrun The project completion time is overrun There is a failure to achieve anticipated benefits Cruise ship boycott Natural disasters t TRANSACTION ADVISORY SERVICES Risk Analysis The main risk factors that are focused on in options analysis are consequence and likelihood. Consequence x likelihood = risk rating t TRANSACTION ADVISORY SERVICES Risk Analysis Consequences Likelihood Insignificant Minor Moderate Major Severe Almost Certain Medium High High Extreme Extreme Likely Medium Medium High High Extreme Possible Low Medium Medium High Extreme Unlikely Low Medium Medium Medium High Rare Low Low Medium Medium High t TRANSACTION ADVISORY SERVICES Options Analysis Summary t TRANSACTION ADVISORY SERVICES t [...]... analysis t TRANSACTION ADVISORY SERVICES Estimating Costs and Benefits t TRANSACTION ADVISORY SERVICES Estimating Costs and Benefits • Identify and categorise future internal economic benefits • Identify and categorise future costs • Select the cost assumption basis • Identify the cost benefit influences • Identify the volume basis for each cost and benefit t TRANSACTION ADVISORY SERVICES t TRANSACTION... Assembly and training Procurement Charges/Contractor’s fees Financing Charges Consultancy Fees Other Expenses t TRANSACTION ADVISORY SERVICES Information Gathering t TRANSACTION ADVISORY SERVICES Information Gathering Information gathering should commence as soon as possible to ensure that the most reliable data available is collected and collated to facilitate estimates and projections of costs and benefits... examining the capital costs but also the operating costs associated with the acquisition or project t TRANSACTION ADVISORY SERVICES Operating Costs Admin & Management Insurance Legal fees Consultants Contractors Interest costs and debt service Personnel/Staff Expenses Salaries Overtime Training Facilities Expense Repairs and Maintenance Other Expenses Market research t TRANSACTION ADVISORY SERVICES Capital. .. -Preserve cash & working capital -Lower debt ratios -Applicable mainly to equipment purchases Operating Leases t LOW HIGH LOW TRANSACTION ADVISORY SERVICES Financing Mechanisms Financing Method 4 Capital Markets Options Merits Level of Applicability Demerits Loans from International Funding Institutions (IFI) -Preferential interest rates -Long repayment periods -Onerous terms and conditions -Long turnaround... investment capital -Investors require higher rates of return due to mandated hurdle rates -Investor returns paid in foreign currency will MODERATE/ HIGH strain foreign reserves -Extensive marketing effort required to attract international investors Real Estate Investment Trust (REIT) -Cash inflow upfront -Foreign currency exposure minimised -Investor require higher return rates -Insufficient capital pool... private investor hurdle rates added to financing costs -Clearly defined project terms and responsibilities required t HIGH TRANSACTION ADVISORY SERVICES Risk Analysis t TRANSACTION ADVISORY SERVICES Risk Analysis • • • • • • Risk analysis is about developing an understanding of the risk Some of the major risk factors for Port projects are: They require major political involvement The project budget is overrun... borrowing limits -Increase Gov debt position Loans from Local/ International Banks -Quicker disbursement times than IFIs -Syndicated loans are available -Can be expensive -Require default assurance from Gov and can strain current borrowing limits -Typically shorter maturities -Increase debt position on balance sheet, make performance ratios less attractive -If size of financing is significant, lending institution... foreign reserves -Balloon payment due at time of maturity -Funds disbursed in tranches to match commitments -Attractive to investors with a long-term investment horizon -Balloon payment financed at start -Capital costs are tax deductible -High transaction costs -Require Gov guarantees which can strain current borrowing limits -Increase Gov debt position -For foreign currency denominated financing, repayments ... limited financial resources, the resistance of Government to guarantee financing obligations, and a country of expectations, how you know which projects to undertake and which capital acquisitions. .. faced with the ever present dilemma of efficiently and effectively utilising the limited financial and natural resources to fulfill the economic and social obligations of the primary shareholder,... • Identify and categorise the benefits • Identify and categorise the costs • Develop a basis for the estimation of costs and benefits • Information gathering • Estimation of costs and benefits