working capital finance 4 infrastructure sector

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WORKINGCAPITALFINANCE

FORINFRASTRUCTURE

SECTOR

Theprojectmainlydealswithfinancesourcesofworking

capitalasfund-based&non-fundbased.Themajornon-

fundbasedsourcesincludethoseoffactoring,L/C,B/G,HP

finance,CorporateLoanetc.Thesesourcesareapplicable

fordifferentsituations.

AMITKUMARROY

30/07/11


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WORKINGCAPITALFINANCEFORINFRASTRUCTURESECTOR

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WORKING CAPITAL FINANCE FOR

INFRASTRUCTURE SECTOR

PROJECTREPORT

Submitted in partial fulfillment of the requirements

For Summer Internship

By

Mr. AMIT KUMAR ROY (Reg.No: 1014370005)

Undertheguidanceof

Miss. Punjika Rathee

LECTURER, DEPARTMENT OF MBA

DEPARTMENTOFMBA

SCHOOLOFMANAGEMENT

IMSENGINEERINGCOLLEGE

JULY 2011


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CERTIFICATE

Certified that the project report entitled WORKING CAPITAL FINANCE FOR

INFRATRUCTURE SECTOR submitted by AMIT KUMAR ROY (1014370005) is a record of

project work done by him under my supervision. This project has not formed the basis for the award

of any degree, diploma, associateship, or fellowship.

Mr. S.I. Mehdi

Sr. Manager Accounts

C&C CONSTRUCTIONS LTD.

Internal Guide Head Of TheDepartment

MBA, IMSEC


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DECLARATION

I do hereby declare that the dissertation entitled WORKING CAPITAL FINANCE FORINFRASTRUCTURE SECTOR is a record of original work carried out by me under the

supervision of Miss. PUNJIKA RATHEE, Lecturer, Department of MBA, IMS ENGINEERING

COLLEGE, Ghaziabad. This project has not been submitted earlier in part or full for the award of any

degree, diploma, associateship or fellowship.

Ghaziabad,

Date AMIT KUMARROY


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ACKNOWLEDGEMENT

I hereby acknowledge all those who are related to this work either directly or indirectly. I

express my deep sense gratitude to C&C CONSTRUCTIONS LTD. for their valuable guidance. I

express my deep sense of gratitude to my project advisors Mr. A. S. PANDEY (C.A), Mr. RAJIV

LAKHANI (CWA), Mr.VIKASH KUMAR SINGH (CWA), MISS RAVNEET KUKREJA

(MBA) & MISS. KRISHNA CHHETRY (CWA) for their expert guidance, stimulating discussions

throughout the period of this project.

I gratefully convey my utmost regards to Mr. S.I. MEHNDI, Senior Manager accounts, C&C

CONSTRUCTIONS LTD. Under whose exhilarating, inspiring, and precious advice the exploration

was carried out. His immutable solacing, uniform enlivening, even motivating and painstaking

deadlines decided by him have shaped it feasible to accomplish the project successfully.

I express my deep sense of gratitude to Miss PUNJIKA RATHEEE, Department of MBA, IMSEC,

Ghaziabad, for her encouragement and support.

Last but not the least I am thankful to the almighty and I will be failing in my duty if I do not express

my indebtedness to our Department Staffs, Parents, and Friends for their support and encouragement.

AMIT KUMAR ROY


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TABLE OF CONTENTS

INTRODUCTION 15

OBJECTIVE 20METHODOLOGY OF STUDY 21FACTORING 23

LETTER OF CREDIT 31BANK GUARANTEE 35HYPOTHECATION FINANCE 54CORPORATE LOAN 57CONCLUSION 59

INTERPRETATION 60

BIBLIOGRAPHY 61

APPENDIX

vQUESTIONNAIRE 62


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LIST OF SYMBOLS & ABBREVIATIONS

vCCL- C&C CONSTRUCTIONS LTD.vW/C- WORKING CAPITAL.vF/B- FUND BASED FINANCING.vNFB- NON-FUND BASED FINANCING.vL/C- LETTER OF CREDIT.vB/G- BANK GUARANTEE.vH/P FINANCE: HYPOTHECATION PURCHASE FINACE.vWCDL- WORKING CAPITAL DEMAND LOAN.vC.C- CASH CREDIT.vO/L- OPERATING LEASE.vD/P- DRAWING POWER.vMSOD- MONTHLY SELECT OPERATION DATA.vCMA- CREDIT MONITORING ASSESSMENT.vMPBF- MAXIMUM PERMISSIBLE BANK FINANCE.

vDSCR- DEBT SERVICE COVERING RATIO.vICB- INTER-CORPORATE BORROWING.vPCFC- PRE-SHIPMENT CREDIT IN FOREIGN CURRENCY.


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PROFILE OF THE COMPANY:

C & C Constructions Ltd. has a unique business model, with proven expertise

in innovative thinking, project and cost management. They are focused on

delivering high quality work within budgeted time and costs, as evident in the

various accolades and repeat business. A key objective has also been to

continuously broad base the operating portfolio and enhances the order book,

thus opening new avenues to growth and profitability. They have also

developed an appropriate blend of entrepreneurs and hands on professionals,

constantly thinking & executing innovative and cost effective solutions to

clients' requirements.

Professionals in the field of infrastructure development incorporated CCL

Company in July 1996. Over the years, the management at CCL Company have

acquired expertise in EPC contracts, and recently, forayed into urban

infrastructure projects. CCL Company has top-notch management and highly

qualified and experienced team of over 1772 employees. The company

commended their construction projects by undertaking two contracts of Rs.0.3

million each in 1996 and presently has a prequalification capacity to quote for

contracts over Rs.32 billion. Presently the turnover of company being around1250 crore approx..

The major clients include:

ational Highways Authority of India

Airports Authority of India

Public Works Department of various State Governments

Punjab Infrastructure Development Board

Public Works Department, AfghanistanThe Louis Berger Group, Inc.

RITES Limited

UNOPS


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The Company is engaged mainly in the following activities:-

vConstruction of highways forNational Highway Authority of India(NHAI) and roads for State PWDs: in Bihar, Punjab, HP, Haryana,

Delhi, and Overseas.

vConstruction of runways for Airports Authority of India (PortBlair).

vProject Export: Construction of Roads in Afghanistan.

vTelecom Cabling: Optic Fiber Cable laying for private telecomoperators e.g. Bharti Infotel, Tata Teleservices and Tower Foundation

and Erection.vConstruction ofhigh capacity bus service route for Delhi Govt.vWater sanitation, Irrigation Piping, Sewerage treatment etc.

Industry Scenario:

(Source: RMD Guidelines)

In the year 2008-09, budget allocation for National Highway DevelopmentProgram (NHDP) was enhanced to Rs.12, 600 crs. From Rs. 9995 crs. In2007-08. The current size of the construction industry in India is estimatedat Rs.3,18,600 crs., of which 87 key players account for nearly one thirdof the market share while rest is distributed amongst the 25,000 plus

small players. The industry has witnessed a sustained growth of 30% perannum during the last four years.According to the 11th Five- Year plan, the core infrastructure sector comprisingpower, roads, highways, railways, ports etc. Will require massive investments

to the tune of Rs.22,05,000 crs.The key programs under road development include the National HighwayDevelopment Programme (NHDP), Pradhan Mantri Gram Sadak Yojana(PMGSY), and Special Accelerated Road Development Programme for the North East (SARDP - NE), in addition to other state level projects.The company has entered into joint ventures for enhancing its business withfirms such as BSC, SE & ISOLUX CORSAN.


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Company strategy:

The business and growth are dependent on the ability to bid for and securelarger and more varied projects. Bidding for infrastructure projects is dependent

on various criteria, including, bid capacity and pre qualification capability. Ithas focused on increasing both these parameters and has continuously increasedour bid capacity.

Performance highlights:

9M Q3

SALESGROWTH 2.5

%

16

EBITDAGROWTH3.4

%

17

PATGROWTH 29% 19

%


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As we can see from the order book that companies major operations lies in road

construction projects. The company structural framework consists of two major

facets as C&C projects which is mainly concerned with road projects in BOT

sector and C&C REALTORS which is mainly concerned with BOT in urban

development. As per the requirements of BOT projects, the company operates

through SPV (special purpose vehicle) format in the form of C&C TOWERS.

0

100

200

300

400

500

600

700

800

900

Netsales EBITDA PAT

FinancialHighlights,March2011

9MFY10

9MFY11

ROADWAYS

70%TRANSMISSION

4%

WATER&

SEVERAGE

3%

RAILWAY

9%

BUILDINGS

14%

ORDERBOOKVERTICALWISE


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Key Balance-Sheet Perspectives As On 31st

March, 2011:

PARTICULARS VALUES

BOOK VALUE PER SHARE 257.78NET WORTH (in crore) 602.93

DEBTOR DAYS 31DEBT (crore) 916.89

CASH & CASH EQVALENT 102.45AVG. COST OF DEBT (%) 13.7

DEBT: EQUITY 1.52

ROCE (%) 13.3ROE (%) 11.7

v8 largest sites, which account for around 89% of the revenues of theCompany, comprising:

- C&C Construction sites:

Zirakpur

Manikpur

Giriyak

Yamuna Expressway

- Joint Venture sites:

BR-8 Darbhanga

Ropar JV

Ranigunj JV

Kursela JV


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COMPANY & ITS JOINT VENTURES (J.V):

FIG: TOTAL ORDER BOOK AT C&C CONSTRUCTIONS, ON JUNE, 2011

C&Cconstruc_ons

ltd.

c&cprojectsltd.(100%)

c&cRealtorsltd.(100%)

BSC-C&CJVNepalpvt.ltd.

(50%)

Un-incorporatedjointventures.

(50%)

BOTprojects

27%

PWD,

Meghalaya

16%IsoluxCorsan

15%

DFCCIL

9%

Jaiprakash

AssociatesLtd.

7%

CPWD,Gov.of

India5%

PWDBihar

4%

MCD,DELHI

3%

PGCIL

3%

PWDHimachal

Pradesh

3%

Other

8%


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EXECUTIVE SUMMARY

The current size of the construction industry in India is estimated at Rs. 3,18,600 crs, of which 87 key

players account for nearly one third of the market share while rest is distributed amongst the 25,000plus small players. The industry has witnessed a sustained growth of 30% per annum during the last

four years. The C&C constructions ltd. Company carries out its projects both in India & abroad. The

company carries out its process through two major structure as C&C projects (engaged in road

projects) & C&C Realtors (BOT in urban development).

The Finance Department is committed to provide the highest levels of financial services and to ensure

that proper controls and procedures are in place to manage the scarce resources of the company.

Finance Department sources different alternatives of funding, evaluates them and adopts the best

alternative of fund procurement that can fulfill the organizational requirement. Similarly, it deploys

the surplus fund of the company in the best possible short-term liquid plan.

v Working capital Finance: Project finance structures are complex as to the verynature of the projects. Each project gives rise to its own unique risks and hence posesits own unique challenges. In every case, the Finance Department takes care of allthose diversities and arranges finance for each Projects varying from Roadways,Railways to Sewerage and Transmission.

Letter of Credit: The company issues letter of credit for its purchase ordersfrom various nationalized banks based on credit limit issued by banks.

Bank Guarantee: The Company offers security in the form of bid or performance or mobilization securities from 13 banks with each havingdifferent limits.

Factoring Services: The Company carries out purchase bill discounting for itsinvoices from various banks. This process is actually Reverse Factoring.

Corporate Loan facilities: The Company arranges its Fund based & NonFund Based working capital through short & long term corporate loanfacilities from either Consortium Banking or Multiple Banking Arrangements.

Hypothecation purchase finance: HP finance is another mode of financingthe equipments for CCL Company. In a HP transaction the loan amount is

paid in installments over a fixed period of time. Often to secure a deal a downpayment has to be paid by the borrower to the financer apart fromhypothecating the equipment financed


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INTRODUCTION:

WORKING CAPITAL MANAGEMENT:

Working Capital is a financial metric, which represents operating liquidity available to a business,

organization, or other entity, including governmental entity. Along with fixed assets such as plant &equipment, working capital is considered a part of operating capital. Net working capital is calculated

as current assets less current liabilities.

Decisions relating to working capital & short-term finance are referred to as working capital

management. These involve managing the relationship between firms short-term assets & its short-

term liabilities. The goal of working capital management is to ensure that the firm is able to continue

its operations and that it has sufficient cash flow to satisfy both maturing short-term debt and

upcoming operational expenses.

v FUND BASED: It includes sources of immediate monetary accrual sources. Theseinclude the following:

Cash Credit Working Capital Demand Loan (WCDL).

Standby Line Of Credit (SLC). Debtors Bill Factoring. Inter-Corporate Borrowing (ICB). Pre-Shipment Credit in foreign currency (PCFC).

v NON-FUND BASED: It includes the following:

Letter Of Credit. Bank Guarantee. HP Finance. Term Loan. Operating Lease.

WORKING CAPITAL

FUND BASED NON-FUND BASED


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FINANCING WORKING CAPIAL FOR INFRASTRUCTURE PROJECTS:

The availability of infrastructure facilities is imperative for the overall development of any country.

Today, there is a need to focus on enhancing the quantity as well as improving the quality ofinfrastructure services provided in India. Roads constitute an important part of infrastructure of a

country. India has the third largest road network in the world. But the growth of road network has not

kept pace with the growth of road traffic. The percentage growth of road traffic from the year 1991 to

1995 has been about 42%, whereas the percentage growth of road length has been only 8.7%. This has

led to severe congestion on the roads. Also, there is a need to improve and maintain the road network.

Due to funds constraints, the government is assigning several projects on a Build-Operate-Transfer

(BOT) basis. BOT is a type of project financing.

SALIENT FEATURES OF WORKING CAPITAL FINANCE:

The salient features of project finance are as follows:

v The lenders finance the project looking at the creditworthiness of the project, not thecreditworthiness of the borrowing party. The repayment of the loans is made from theearnings of the project.

v Project financing is also known as limited recourse financing as the borrower has alimited liability. The security taken by the lenders is largely confined to the projectassets.

RISK STRUCTURE IN WORKING CAPITAL FINANCE

Most project finance structures are complex. The risks in the project are spread between the various

parties; the party, which can most efficiently and cost-effectively control or handle it, usually assumes

each risk. RISK ALLOCATION Once the projects risks are identified, the likelihood of their

occurrence assessed and their impact on the project determined, the sponsor must allocate those risks.

BUILD, OPERATE AND TRANSFER (BOT) PROJECTS

BOT is a relatively new approach to infrastructure development, which enables direct private sectorinvestment in large-scale infrastructure projects.

Build A private company (or consortium) agrees with a government to invest in a public

infrastructure project. The company then secures their own financing to construct the project.

Operate the private developer then owns, maintains, and manages the facility for an agreed

concession period and recoups their investment through charges or tolls.

Transfer after the concessionary period the company transfers ownership and operation of thefacility to the government or relevant state authority.


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PARTIES TO BOT PROJECTS

There are a number of major parties to any BOT project and all of them have particular reasons to be

involved in the project. The contractual arrangements between those parties, and the allocation of

risks, can be complex.

The major parties to a BOT project will usually include:

1. Government Agency A government department or statutory authority is a pivotal party. Itwill:

v Grant the sponsor the "concession", that is the right to build, own and operate thefacility,

v Grant a long term lease of or sell the site to the sponsor, andv Often acquire most or all of the service provided by the facility.

The government's co-operation is critical in large projects. It may be required to assist in obtaining the

necessary approvals, authorizations, and consents for the construction and operation of the project. Itmay also be required to provide comfort that the agency acquiring services from the facility will be in

a position to honor its financial obligations.

The government agency is normally the primary party. It will initiate the project, conduct the

tendering process and evaluation of tenderers, and will grant the sponsor the concession, and where

necessary, the off take agreement.

2. Sponsor The sponsor is the party, usually a consortium of interested groups (typically including

a construction group, an operator, a financing institution, and other various groups) that, in response

to the invitation by the Government Department, prepares the proposal to construct, operate, and

finance, the particular project. The sponsor may take the form of a company, a partnership, a limited

partnership, a unit trust or an unincorporated joint venture.

3. Construction ContractorThe construction company may also be one of the sponsors. Itwill take construction and completion risks, that is, the risk of completing the project on time, within

budget and to specifications.

4. Operation and Maintenance Contractor The operator will be expected to sign along-term contract with the sponsor for the operation and maintenance of the facility. Again the

operator may also inject equity into the project.

5. Financiers

In a large project there is likely to be a syndicate of banks providing the debt funds to the sponsor.

The banks will require a first security over the infrastructure created. The same or different banks will

often provide a stand-by loan facility for any cost overruns not covered by the construction contract.

7. Other Parties

Other parties such as insurers, equipment suppliers and engineering and design consultants will alsobe involved. Most of the parties too will involve their lawyers and financial and tax advisers.


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ADVANTAGES OF BOT PROJECTS:

BOT projects have several advantages such as-

vThe government gets the benefit of the private sector to mobilize finances and to use

the best management skills in the construction, operation, and maintenance of theproject.

v The private participation also ensures efficiency and quality by using the bestequipment.

vThe projects are conducted in a fully competitive bidding situation and are thuscompleted at the lowest possible cost.

BOT PROJECTS IN INDIA

There is a tremendous thrust in the infrastructure sector in India. National Highway Development

Programme (NHDP), consisting of The Golden Quadrilateral and The North-South, East-West

corridors, has been launched. National Highways Authority of India (NHAI) is implementing NHDP.

The NHDP is Indias largest ever highway projects. It involves four and six laning of 13,146 Km of

roads with a total cost of Rs.54,000 crores. The NHDP consists of nine BOT projects of 456 Km with

estimated cost of Rs.2, 700 crores. Apart from the BOT projects under NHDP, there are several other

projects being done on BOT basis in India.

PROJECTS AT C&C CONSTRUCTIONS:

Presently the company is working on around 30 projects, mostly on BOT structure. The company

organizes its finance through processes such as Factoring of purchase bills, issue ofLetter of credit

& Bank Guarantee along with corporate loan facilities in order to manage its working capital. The

flow of capital through various SPV & joint ventures is carried out based on share holding agreements.

The project work was mainly concerned with understanding the process of these financing processes

and analyzing the finance functions of the company. The prime rationale behind this study was to find

the best source of finance for Infrastructure Company and understanding the processes.


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Recent projections from NHAI allocations of projects as done by Deloitte :

Working Capital Borrowing:

The borrowing working capital for capital-intensive infrastructure requires:

v Projections/Financials of 4 to 5 years.v Credit Monitoring Assessment (CMA).vNFB limit justification.v Order Book.v Debt Position.v Bank security

First charge in the current asset. Second charge on all Fixed Assets.

PGSB (personal guarantee security bow).v Drawing Power statement.

COMPLETED

27%

WORKIN

PROGRESS

17%

TOBE

AWARDED

56%

BOTPROJECTS


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OBJECTIVE

The infrastructure industry being a capital-intensive sector requires large

amount of funding arrangements for its working capital. The fund based and

non-fund based sources of finance are analyzed for the C&C Constructions ltd.

The non-fund based sources such as letter of credit, bank guarantee, factoring of

purchase bills, corporate loan & hypothecation purchase financing has to be

analyzed in relation to processes and suitability of condition for financing

working capital. This project work was primarily aimed at analyzing the

processes and finance functions being practiced at C&C Constructions Ltd.

The study was carried out for:

vPURCHASE BILL FACTORINGvLETTER OF CREDIT.

vBANK GUARANTEE.vHYPOTHECATION FINANCE.v CORPORATE LOAN FACILITY.


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METHODOLOGY OF STUDY:

MANAGEMENT OF RECEIVABLES- FACTORING

Trade credit happens when a firm sells its products or services on credit and

does not receive cash immediately. It is an essential marketing tool, acting as a

bridge for the movement of goods through the production and distribution

stages to customers. A firm grants trade credit to protect its sales from the

competitors and to attract the potential customers to buy its products at

favorable terms. Trade credit creates accounts receivable or trade debtors(also referred as book debts in India) that the firm is expected to collect in near

future. The customers from whom receivables or book debts have to be

collected in the future are called trade debtors or simply as debtors and

represent the firms claim or asset.

A credit sale has three characteristics:

v It involves an element of risk that must be carefully analyzed.v It is based on economic value. To the buyer, the economic value in goods or

services passes immediately at the time of sale, while the seller expects anequivalent value to be received later on.

v It implies futurity i.e. the buyer will make the cash payments for goods orservices received by him, in future period.

A firms investment in the accounts receivable depends on:

vThe volume of credit salesvThe collection period.

Avg. investment in accounts receivable

= Daily credit sales Avg. collection period


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The volume of credit sales is a function of firms total sales and the percentage

of credit sales to total sales. The percentage of credit sales to total sales is

mostly influenced by the nature of business and industry norms.

The term credit policy is used to refer to combination of three decision variablesviz.

vCredit standards: the criteria to decide the types of customers to whomgoods could be sold on credit. If a firm has slow paying customer, itsinvestment in accounts receivable will increase. The firm will also beexposed to higher risk of default.

vCredit terms: it specifies the duration of credit and terms of payment bycustomers. Investment will be high if customers are allowed extendedtime period for making payments.

vCollection efforts: determines the actual collection period. The lower thecollection period, the lower will be the investment and vice versa.

Goals of credit policy:

A firms credit policy is aimed at maximizing shareholders wealth through

increase in sales leading to net improvement in profitability. Increased sales

will not only increase operating profits but will also require additional

investment and costs. Hence, a trade-off between incremental returns and

cost of incremental investment is involved.

Credit management is a specialized activity, and involves a lot of time and

effort of a company. Collection of receivable poses a problem, particularly

for small-scale enterprises. Banks have the policy of financing receivables.

However this support is available for a limited period and the seller of goods

and services has to bear the risk of default by debtors. One of the major

mechanisms of managing, financing and collecting receivables isFACTORING.


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FACTORING:

Factoring is the purchase of accounts receivable by a factoring company at a

discount, in order to provide a business with immediate cash to fund its

growth. By factoring its receivables, a business owner is no longer forced towait for customers to pay. It is a widely used financing option used by many

companies of all sizes. It may also be defined as financial transaction

whereby a business sells its accounts receivable (i.e. invoices) to a third

party (called a factor) at a discount in exchange for immediate money with

which to finance continued business.

Nature of factoring:

Factoring is a unique financial innovation. It is both a financial as well as

management support to clients. It is a method of converting a non-productive,

inactive asset (i.e. receivables) into a productive asset (viz. cash) by selling

receivables to a company that specializes in their collection and

administration. The agreement between the supplier and the factor specifies

the factoring procedure. Usually the firm sends the customer orders to the

factor for evaluating the customers creditworthiness and approval. Once the

factor is satisfied about the customers creditworthiness and agrees to buy the

receivables, the firm dispatches goods to the customer. The customer will be

informed that his account has been sold to the factor. To perform his

function of credit evaluation and collection of large number of clients, a

factor may maintain a credit department with specialized staff. Once the

factor has purchased a firms receivables and if he agrees to own them, he

will have to provide protection against any bad-debt losses to the firm.

Factoring and Short Term Financing:

Although factoring provides short term financial accommodation to the

client, it differs from other types of short term credit in the following

manner:

vFactoring involves sale of book debts. Thus, the client obtains advancecash against the expected debt collection and does not incur a bad debt.

vFactoring provides flexibility as regards credit facility to the client. Hecan obtain cash either immediately or on due date or from time to timeas and when he needs cash. Such flexibility is not available in normal

sources of credit.


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vFactoring not only provides credit to the clients but also undertakesthe total management of clients book debts.

TYPES OF FACTORINGThe factoring facilities can broadly be classified as :

vFull service Non Recourse (old line).vFull service Recourse factoring.vBulk/Agency factoring.vNon-notification factoring.

Non-Recourse factoring- in this, the risk of customer repayment is assumed bythe factor. Factoring fees are often higher and the client is still responsible for

performance related responsibilities relative to the quality of products and or

services rendered.

Full-Recourse Factoring: In this type of factoring, the factor is protected

against customer non-payment. If the customer does not ultimately pay the

invoice, the client is responsible for reimbursing to the factor the funds

advanced, in addition to fees and intrest. It is less risky from factors point of

view.

Bulk/Agency Factoring: It is basically used as a method of financing bookdebts. Under this the client continues to administer credit and operate sales

FACTORING

NONRECOURSE

RECOURSE

BULK/AGENCY

NON NOTIFICATION


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ledger. The factor finances the book debts against bulk either on recourse or

without recourse.

Non-Notification Factoring: Under this customer are not informed about the

factoring agreement. It involves the factor keeping the account ledger in thename of sales company to which client sells his book debts.

FACTORING DISCOUNT RATES AND FEES:

Factoring companies charge a discount fee for the cash advances that they

provide to their clients. The discount rate compensates factors for the risk

inherent in factoring and for the work involved in collecting business

outstanding invoices. The discount rate can range between 1% and 5% of face

value of all submitted receivables, depending on the type of factoring.

CLASSIFICATION OF FACTORING:

PURCHASE BILL DISCOUNTING:

It is also known as REVERSE FACTORING, OR SUPPLY CHAIN

FINANCE . Under this type, the buyer of goods and services issues bills of

exchange against the invoices of the suppliers to the factoring organization with

definite rate of interest payable for the invoice amount. The rate of interest

FACTORING

RECEIVABLES FACTORINGPURCHASE BILLDISCOUNTING


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depends upon the credit risk of the buying party and varies from one factor to

another. Bill factoring facilitates purchase of materials, spares and services.

MECHANISM OF PURCHASE BILL DISCOUNTING:

1) Purchase order sent to the supplier for goods and services.2) Goods/services received from supplier.3) Invoices for the purchased goods/services are received from supplier.4) Purchaser issues bills of exchange for the invoice amount to the factor

(bank).5) Bill of exchange and invoice along with post-dated cheque of bill of

exchange amount is sent to the factor.

6) Purchaser makes payment of interest amount and other charges to thefactor (upfront payment).

7) Factor/ bank makes payment to supplier.8) On due date factor/bank presents the cheque in the bank.

FACTORING AT C&C CONSTRUCTIONS LTD.:

Factors: The factoring agencies for discounting of purchase bills at C&C

infrastructure constitute banking sectors with each having their own rate of

interest and margin on the invoice amount.

Factoring limit refers to the maximum amount for which the firm can issue

bills of exchange for discounting. This limit is fixed for a time period of three

months for each factor and is regulated after every three months.

Factor margin is the amount for which the factors offer discounting for the

invoiced amount. SICOM & INDUSIND BANK LTD do not charge any

margin.

Interest rates are the amount of interest charged by the factor on the discounted

amount. This interest is subject to vary depending on bank policies.

Handling Charges are the expenses incurred by factor in payment and

collection of discounted amount. They are charged to purchaser on defined

percentage basis.


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List of the factors:

Sr.no:

NAME OFFACTOR

LIMIT(INRCR.)

MARGIN INTEREST HANDLINGCHARGES

1. IDBI BANK LTD. 25 10% 14.25% 0.1% (MIN.Rs. 1000)

2. SICOM LTD. 60 NIL 12.5% NIL3. IFCI FACTORSLTD.

18 10% 13.25% 0.2 %

4. INDUSINDBANK LTD.

25 NIL 11.25% NOTDEFINED

NOTE:- Sales bill discounting is done by IFCI FACTORS LTD.


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FORMAT OF BILL OF EXCHANGE:

BillofExchangeNumber:IDBI/10-11

BOEdate:------------

BOEAmount:----------

BOEDuedate:-----------

At90daysfromthedateofBillofExchange,pleasepaytoIDBIBankLtd,NewDelhi.Or

orderasumofRs2179206.=00(RupeesTwentyOneLakhsSeventyNineThousandTwo

HundredandSixonly)forthevalueoftransportationservicessuppliedagainstinvoice

detailsgivenbelow:

InvoiceNo Date BillAmount LessDeductions NetPayable

EXP/2010-11/251A 28-08-2010 27,652 553 27099=00

EXP/2009-10/071B 02/07/2010 359039 97181 261858=00

EXP/2010-11/200 07/07/2010 210681 4213 206468=00

EXP/2010-11/180 02/07/2010 850114 17002 833112=00

EXP/2010-11/0133A 71525 1431 70094=00

TOTAL 2179206=00

Dulyacceptedcopiesofinvoicesattached.

Rightforpresentment,Protest,NoticeofDishonorwaivedbyallpartiesconcerned.

ForSealinkFreight&ShippingPvtLtd

(SignatureoftheDrawer)

C&CConstructions

Gurgaon,Haryana122001

(DIRECTOR)


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APPLICATION FOR PURCHASE BILL DISCOUNTING:

To Dated

25/06/2011

TheAssistantGeneralManager

IDBIBankLimited

NewDelhi

DearSir,

PurchasebilldiscountingFacility

WerefertoyoursanctionRefnoIDBI/ICG/NewDelhi/42/08-09dated 22/05/2008, forpurchase

billdiscountingfacilityofRs25Crores.

Inthisconnectionwesubmit thefollowingdocuments forthegoodsreceived/receivable ingood

condition,fromthefollowing suppliers andrequest youtomake directpayment tothe suppliers

afterdiscountingthesame.DetailofBillamount&netpayableisasunder.

Name of the

Supplier

B.E.No BillAmount

(NetPayable)

Duedate Post dated

cheque no.

anddate

Amount90%

MannGas

Station

5,525,840=00 4,73,256=00

Incidentally,wedowaiveourrightstotakeadvantageofanydefaultinpresentationforpaymentof

thecaptionedBillsofExchange/HundiesorServiceofnoticeofdishonorasrequiredbylaw.

PleasedebitourCCA\cNo-.oftheupfrontmoneyandissuethePayOrder/DDinfavorof

theabovementionedparty.

Yoursfaithfully

ForC&CConstructionsLimited

Director


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BANK FINANCE FOR WORKING CAPITAL- L/C, B/G.

Banks are the main institutional sources of working capital finance. After trade

credit, bank credit is the most important source of financing working capital

requirements. A bank considers a firms sales and production plans and desirablelevel of current assets in determining its working capital requirements. The

amount approved by the bank for the firms working capital is called CREDIT

LIMIT. Credit limit is the maximum amount of funds, which a firm can obtain

from banking systems.

LETTER OF CREDIT:

It is also known as Documentary credit. It can be defined as an arrangement

whereby bank acting at the request and on the instruction of a customerfacilitates his purchase of goods. If the customer does not pay to the supplier

within the credit period, the bank makes the payment under the L/C

arrangement. This arrangement passes the risk of supplier to the bank. Unlike

cash credit or overdraft, the L/C is an indirect financing; the bank will make

payment to the supplier on behalf of customer only when he fails to meet the

obligation.

When a buyer wishes to acquire goods or services from a seller, the buyer canrequest his or her bank to issue a letter of credit. A financing instrument issued

by a bank in favor of an exporter that substitute the bank's creditworthiness for

that of the importer (also called a documentary credit). A letter of credit is

a written document issued by the buyer's (or importer's) bank and addressed to

a seller. The person or company that sells or arranges to transport goods out of a

country.

The letter of credit guarantees payment to the seller through the seller's bankwhen the seller, through his or her bank, presents certain documents to the

buyer's bank. The letter of credit specifies where and what documents the seller

must present, the amount of money. A medium of exchange; coined or stamped

currency available, and the latest date for presenting the documents. The

documents may vary, but their purpose is to assure that the goods have been

"sold and are on their way to the buyer.


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Parties to the letter of credit:

vApplicant: also referred, as account party is normally a buyer orcustomer of the goods, who has to make the payments to the beneficiary.

L/C is issued at his request and on his instruction.v Issuing bank: is the one, which creates a letter of credit and takes theresponsibility to make the payments on receipt of documents from thebeneficiary. The payment has to be made to the beneficiary within sevenworking days from the date of receipt of documents.

vBeneficiary: is normally the seller of goods, who has to receive the payments from the applicants. A credit is issued in his favor to enable

him or his agent to obtain payment on surrender of stipulated documentsand comply with the terms & conditions of L/C.

Types Of Letter Of Credit:

I. Revocable L/C: It may be revoked or modified for any reason, at anytime by the issuing bank without notification. It is rarely used ininternational trade.

II. Ir-Revocable L/C: It is not possible to revoke or amend a credit withoutthe agreement of issuing bank, conforming bank and the beneficiary. Itensures beneficiary that, if the required document are presented and terms

are complied with, payment will be made.III. Confirmed L/C: Under this another bank apart from the issuing bank

has added its guarantee.IV. Usance credit L/C: Drafts are drawn on the issuing bank or the

correspondent bank at specified Usance period.V. Back-to-Back L/C: A credit is known as back-to-back when a L/C is

opened with security of another L/C. it is used mainly when the ultimatebuyer is not ready for a transferable credit.


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Commercial Letter of Credit Flow:

Applicant (C&C Constructions Ltd, in this case) approaches Issuing/ Opening

Bank (Indusind Bank) with LC application form duly filled and requests Issuing

Bank to issue a Letter of Credit in favor of Beneficiary (ABC Ltd.)

.

1. Issuing Bank issues a Letter of Credit as per the application submitted byan Applicant and sends it to the Advising Bank, which is located inBeneficiarys country, to formally advise the LC to the beneficiary.

2. Advising Bank advises the LC to the Beneficiary.3. Once Beneficiary receives the LC and if it suits his/her requirements,

he/she prepares the goods and hands over them to the carrier fordispatching to the applicant.

4. He/she then hands over the documents along with the TransportDocument as per LC to the Negotiating Bank to be forwarded to theIssuing Bank.

5. Issuing Bank reimburses the Negotiating Bank with the amount of the LC post Negotiating Banks confirmation that they have negotiated thedocuments in strict conformity of the LC terms. Negotiating Bank makes

the payment to the Beneficiary.6. Simultaneously, the Negotiating Bank forwards the documents to the

Issuing Bank to be released to the Applicant to claim the good from the

carrier.


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7. Applicant reimburses the Issuing Bank for the amount, which it had paidto the Negotiating Bank.

8. Issuing Bank releases all documents along with the titled TransportDocuments to the Applicant.

Fees & Reimbursements For L/C:

The issuing bank charges the applicant fees for opening the letter of credit. The

fee charged depends on the credit of the applicant, and primarily comprises of:

A.Opening charges: It comprises of commitment charges andUsance charges to be charged upfront for the period of L/C. Thefee charged by opening bank during the commitment period is

referred to as commitment fees. Commitment period is the periodfrom the opening the letter of credit till the last date of negotiationof documents under L/C.

B.Retirement Charges: This would be payable at the time ofretirement of L/C.

DOCUMENTS TO BE PREPARED FOR ISSUE OF L/C:

vREQUEST LETTER.vBANK FORMAT.vCOPY OF L/C.


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BANK GUARANTEE:

Introduction

A bank guarantee is a written contract given by a bank on the behalf of a

customer. By issuing this guarantee, a bank takes responsibility for payment of

a sum of money in case, if it is not paid by the customer on whose behalf the

guarantee has been issued. In return, a bank gets some commission for issuing

the guarantee.

Any one can apply for a bank guarantee, if his or her company has obligations

towards a third party for which funds need to be blocked in order to guarantee

that his or her company fulfills its obligations (for example carrying out certain

works, payment of a debt, etc.). In case of any changes or cancellation during

the transaction process, a bank guarantee remains valid until the customer dully

releases the bank from its liability.

In the situations, where a customer fails to pay the money, the bank must pay

the amount within three working days. The bank can also refuse this payment, if

the claim is found to be unlawful.

Benefits of Bank Guarantees:

For Governments

1. Increases the rate of private financing for key sectors such as infrastructure.

2. Provides access to capital markets as well as commercial banks.

3. Reduces cost of private financing to affordable levels.

4. Facilitates privatizations and public private partnerships.

5. Reduces government risk exposure by passing commercial risk to the private

sector.

For Private Sector

1. Reduces risk of private transactions in emerging countries.

2. Mitigates risks that the private sector does not control.

3. Opens new markets.

4. Improves project sustainability.


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Legal Requirements

Bank guarantee is issued by the authorized dealers under their obligated

authorities notified vide FEMA 8/ 2000, 3rd May 2000. Only in case of

revocation of guarantee involving US $ 5000 or more need to be reported toReserve Bank of India (RBI).

Types of Bank Guarantees

1. Direct or Indirect Bank Guarantee: It is issued by the applicant's bank(issuing bank) directly to the guarantee's beneficiary without concerninga correspondent bank. This type of guarantee is less expensive and is also

subject to the law of the country in which the guarantee is issued unlessotherwise it is mentioned in the guarantee documents.

With an indirect guarantee, a second bank is involved, which isbasically a representative of the issuing bank in the country to whichbeneficiary belongs. This involvement of a second bank is done on thedemand of the beneficiary. This type of bank guarantee is more timeconsuming and expensive too.

2. Confirmed Guarantee :

It is cross between direct and indirect types of bank guarantee. This typeof bank guarantee is issued directly by a bank after which it is send to aforeign bank for confirmations. The foreign banks confirm the originaldocuments and thereby assume the responsibility.

3. Tender Bond:This is also called bid bonds and is normally issued in support of a tenderin international trade. It provides the beneficiary with a financial remedy,if the applicant fails to fulfill any of the tender conditions.

4. Performance Bonds:

A types of bank guarantee which is used to secure the completion of thecontractual responsibilities of delivery of goods and act as security ofpenalty payment by the Supplier in case of non delivery of goods.

5. Advance Payment Guarantees:This mode of guarantee is used where the applicant calls for the provisionof a sum of money at an early stage of the contract and can recover theamount paid in advance, or a part thereof, if the applicant fails to fulfillthe agreement.

6. Payment Guarantees:This type of bank guarantee is used to secure the responsibilities to paygoods and services. If the beneficiary has fulfilled his contractual


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obligations after delivering the goods or services but the debtor fails tomake the payment, then after written declaration the beneficiary caneasily obtain his money form the guaranteeing bank.

7. Loan Repayment Guarantees:

This type of guarantee is given by a bank to the creditor to pay theamount of loan body and interests in case of nonfulfillment by theborrower.

8. B/L Letter of Indemnity:This is also called a letter of indemnity and is a type of guarantee fromthe bank making sure that the carrier will not suffer any kind of loss ofgoods.

9. Rental Guarantee:This is given under a rental contract. Rental guarantee is either limited to

rental payments only or includes all payments due under the rentalcontract including cost of repair on termination of the rental contract.

Procedure for Bank Guarantee:

To obtain the bank guarantee one need to have a current account in the bank. A

bank through its authorized dealers as per notifications mentioned in the FEMA

8/2000 date 3rd May 2000 can issue guarantees. Only in case of revocation of

guarantee involving US $ 5000/ or more to be reported to Reserve Bank of

India along with the details of the claim received.

Bank Guarantees vs. Letters of Credit

A bank guarantee is frequently confused with letter of credit (LC), which is

similar in many ways but not the same thing. The basic difference between the

two is that of the parties involved. In a bank guarantee, three parties are

involved; the bank, the person to whom the guarantee is given and the person on

whose behalf the bank is giving guarantee. In case of a letter of credit, there arenormally four parties involved; issuing bank, advising bank, the applicant

(importer) and the beneficiary (exporter).

Also, as a bank guarantee only becomes active when the customer fails to pay

the necessary amount where as in case of letters of credit, the issuing bank does

not wait for the buyer to default, and for the seller to invoke the undertaking.


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L/C, B/G AT C&C INFRASTRUCTURE:

At C&C Infrastructure the primary forms of bank guarantees being carried out

for financing are:

vBID SECURITY- carried out for acquisition of projects through bidding process. Under this the bank provides bid security to the beneficiary inmonetary terms.

vPERFORMANCE SECURITY- Under this the bank provides guaranteeof performance by applicant to the beneficiary. This can extend up toperiod of five years or as stated in agreement.

vADVANCE SECURITY- Bank provides guarantee in the form ofadvance.

vFINANCIAL SECURITY- The bank provides financial security forpayments due to the beneficiary for the supplied goods & spares.

Under L/C the applicant (purchaser) requests the issuing banker for issue of

letter of credit for the concerned amount as made in the purchase order along

with terms & conditions regarding Usance period or the period allowed for

submission of documents to the advisory bank for claim for payments. This

Usance period can extend up to period of one month or as stated in the

agreement.

L/C & B/G At C&C Construction:

The bankers at C&C Constructions include thirteen bankers, all of them being

located in New Delhi. The suppliers prefer L/C from nationalized banks. The

company decides on the basis of rate of margin offered by the bank, rate of

interest charged and limit of credit sanctioned. These banks provide different

credit limits for L/C, B/G & Foreign Bank Guarantee.


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The list of bankers to C&C Construction:

Sr. No: NAME OF THE BANKS

1. STATE BANK OF INDIA, NEW DELHI

2. STATE BANK OF HYDERABAD, DELHI3. SBOP, NEW DELHI4. ORIENTAL BANK OF COMMERCE5. AXIS BANK, NEW DELHI6. IDBI BANK LTD, NEW DELHI7. INDUSIND BANK, NEW DELHI8. ICICI BANK, GURGAON9. DBS BANK, NEW DELHI

10. ING VYSYA BANK, NEW DELHI11. BARCLAYS BANK, NEW DELHI

12. STANDARD CHARTERED BANK13. HSBC, NEW DELHI


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The C&C constructions purchases raw materials such as bitumen, HSD, steel,

cement & other spares from its vendors an makes payments through L/C or B/G

or factoring. Recently the firm applied for issue of L/C for supply of rock

breaker from SANDVIK ASIA LTD. for JAHU SITE.

Sr.

no

Name of

bank

B/G margin B/G

commission

L/C

margin

L/C

commission

Domestic Bid Export % %

1. SBI 5% NIL 5% 1.79% p.a 5% 2.34%

2. SBOH 5% NIL 10% 1.25% p.a 5% 1.80%

3. SBOP 5% NIL 1.38% p.a 5% 1.80%

4. OBC 5% NIL 2.50% p.a 5%

6. IDBI 5% NIL 0.8% p.a 5% 0.8% p.a

qtrly

7. INDUSIND 5% NIL 5% 0.75% p.a-

Performance

5%-

material

0.5% p.a

8. ICICI NIL NIL 0.75% NIL 0.75% p.a

9. DBS NIL NIL 1% p.a NIL 1.0% p.a

10. Ing Vysya NIL NIL 1% p.a NIL 1%- ILC

Upfront.

11. Barclays 1% 1% 1.25% p.a 1% p.a 1.25% p.a

12. Std.

Chartered

NIL NIL 1.50% p.a NIL 1.50% p.a

13. HSBC 5% 5% 1.25% p.a 5% 1.25% p.a


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The request letter for issue of L/C to INDUSIND BANK LTD:

Date: 17.06.2011

The Vice President

Indusind Bank Limited,

28, Barakhamba Road,C P

New Delhi 110 001

Reg.:- Opening of Letter of Credit

Dear Sir,

Please find enclosed herewith an application for opening a Letter of Credit of

Rs. .. in favor of M/S Sandvik Asia Pvt. Ltd., Mumbai Pune

Road, Dapodi, Pune, Maharashtra-411012.

Also enclosed are Purchase Order & necessary Stamp Paper.

Thanking you,

Yours faithfully,

ForC&C Constructions Ltd.

DIRECTOR


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FORMAT OF LETTER OF GUARANTEE BY C&C ON

STAMP PAPER TO M/S SNADVIK ASIA LTD.

To,

The Vice President

Indusind Bank Limited,

28, Barakhamba Road. C. P

New Delhi 110 001

This stamp paper forms an integral part of Letter of Credit Application &

Guarantee, dated 17.06.2011 for .. Favoring M/S Sandvik

Asia Pvt. Ltd., Mumbai Pune Road, Dapodi, Pune, Maharashtra-411012.

Place: Gurgaon


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L.C. No. : ------------------------------ Date of Issue: ----------

-

Branch Office: Indusind Bank Limited

Dr Gopaldas Bhavan, 28, Barakhamba Road,

New Delhi, Tel:011 23738409, Fax: 011 23738041

Date of Expiry: 15.09.2011

Last Date of Shipment : 16.08.2011

Applicant :

C & C Constructions Limited

Plot No. 70, Institutional Sector 32,

Gurgaon 122 001, Haryana.

Beneficiary :

M/S SANDVIK ASIA LIMITED.,

Dapodi,Mumbai-Pune Road, Pune, India 411012.

Advising Bank / Branch:

The Hongkong and Shanghai Banking Corporation

Limited, Amar Avinash Corporate City, S.No. 11, Bund

Garden Road, Pune 411001.

SWIFT CODE : HSBCINBB

Amount in Rs. 9,15,472/- (Rupees Nine Lacs

Fifteen Thousand Four Hundred Seventy Two

Only).

Partial Dispatches Allowed Credit available by negotiation of the

beneficiarys drafts drawn on us a/c applicant

and marked Drawn under this irrevocable LCfor 100% of the invoice at 90 days Usance

from the date of dispatch, accompanied by the

following documents quoting this credit no.

Transshipment

Shipped From

Shipped To

Allowed

RAJPURA/HYDERABAD

JAHU/UNA (HIMACHAL

PRADESH)

Description of Goods :

1.Spares for Sandvik Rock Breaker for Jahu site as per P.O. No. 17149 Dtd. 13.06.2011 & P.O. No. 16808 Dtd.

31.05.2011

2. Spares for Sandvik Rock Breaker for UNA site as per P.O. No. 16994 Dtd. 07.06.2011

Documents required :

1. Draft for 100 % of invoice value in duplicate.


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2. Signed commercial Invoice in triplicate.

3. Lorry receipts in duplicate.

Additional Conditions:

1. All Documents must mention our L/c Number and date of issue.

2. Document for negotiation should be presented within 30 days from the date of dispatch but

Within the validity of LC..

3. 100% payment by L/C of 90 days Usance period. Interest for 60 days to be borne by Sandvik and for

30 days to be borne by the applicant.

4. Dispatch prior to the date of LC is permitted.

We hereby engage with drawers, endorses and /or bonafide holders that draft(s) drawn

under and negotiated in conformity with the terms of this credit will be duly honored or

presentation and that draft(s) accepted within the terms of this credit will be duly honored at

maturity. Except as otherwise expressly stated, this credit is subject to uniform Customs

and Practice for Documentary Credits (2007 Revision) International Chamber of Commerce,

Publication No. 600.


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FD-SWIFT-700 APPLICATION & GUARANTEE FOR ISSUE OF DOCUMENTARY CREDIT

(To be stamped as an agreement; not to be attested)

(Importrs Code No._________________)

INDUSIND BANK LIMITED

Dr Gopaldas Bhavan, 28,

Barakhamba Road, New Delhi.

PLEASE ESTABLISH BY SWIFT/TELEX/AIRMAIL DOCUMENTARY CREDIT AS PER DETAILS

BELOW:

40 TYPE OF L/C [ ] REVOCABLE; [ ] IRREVOCABLE & TRANSFERABLE

31

D #

DATE & PLACE/

COUNTRY OF

EXPIRY

DATE: (YYMMDD) 11.09.15

PLACE/ COUNTRY : NEGOTIATING

50 # NAME & ADDRESS

OF THE APPLICANT

M/S C&C CONSTRUCTIONS LIMITED

PLOT NO. 70, SECTOR-32, GURGAON-122001.

59 # NAME & ADDRESS

OF THE

BENEFICIARY

WITH TEL, TLX, &

FAX NO.

M/S SANDVIK ASIA LIMITED.,

Mumbai-Pune Road, Pune, India 411012.

32

B #

CURRENCY &

AMOUNT OF

CREDIT (IN

FIGURES & WORDS)

Rs. 9,15,472/- (Rupees Nine Lacs Fifteen Thousand Four Hundred Seventy Two Only).

39

A,

VARIATION IN L/C

AMT

+/______ %

39

C,

ADDITIONAL AMTS

PERMITTED

41

A #

CREDIT

AVAILABLE WITH

ANY BANK

CREDIT

AVAILABLE BY

PAYMENT; NEGOTIATION; ACCEPTANCE; DEF PAYMENT

20: # L/C NO: 1211357

31 C: DATE: 17/06/11

23 PREADVISED ON: PREADV /


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DRAFTS REQUIRED [ ] YES [ ] NO

42

C

[ ] AT SIGHT; [ ]_90_DAYS FROM THE DATE OF SHIPMENT

42A DRAWEE INDUSIND BANK

42

M

MIXED PAYMENT

DETAILS

42B DEFERRED

PAYMENT DETAILS

-

43P PARTIAL

SHIPMENTS

[ ]PERMITTED [ ] PROHIBITED

43T TRANSHIPMENTS [ ] PERMITTED [ ] PROHIBITED

44A SHIPMENT FROM RAJPURA/HYDERABAD

44B SHIPMENT TO JAHU/UNA (HIMACHAL PRADESH)

44C LATEST SHIPMENT

DATE: (YY MM DD)

10.08.16

44D SHIPMENT PERIOD

45A DESCRIPTION OF GOODS:

1.Spares for Sandvik Rock Breaker for Jahu site as per P.O. No. 17149 Dtd. 13.06.2011 & P.O. No. 16808 Dtd.

31.05.2011

2. Spares for Sandvik Rock Breaker for UNA site as per P.O. No. 16994 Dtd. 07.06.2011

INCOTERMS : FOB/C&F/CIF. FOR

46A DOCUMENTS REQUIRED:

[ ] DRAFT FOR_100%_____OF INVOICE VALUE

[ ] COMPLETE SET OF CLEAN ON BOARD OCEAN BILLS OF LADING MADE TO ORDER OF/ ENDORSED

IN FAVOUR OF INDUSIND BANK LTD. A/C. APPLICANT QUOTING OUR L/C NO. & DATE MARKED

FREIGHT PRE-PAID/ TO PAY AND NOTIFY APPLICANT AND INDUSIND BANK LIMITED.

[ ] AIRWAY BILL SHOWING THE ABOVE GOODS CONSIGNED TO INDUSIND BANK LTD.

A/C _______C&C Constructions Ltd.____________ NOTIFY APPLICANT.

[ ] CERTIFICATE OF ORIGIN ISSUED BY __________________________


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[ ] INSURANCE POLICIES/ CERTIFICATES IN DUPLICATE COVERING MARINE/ AIR AND WAR

RISKS AND ALSO SRCC AND MALICIOUS DAMAGES FOR CIF VALUE GIVE ___________ %

OR ____________________________________________________

[ ] INSURANCE POLICIES/ CERTIFICATES IN DUPLICATE COVERING MARINE/ AIR INSURANCE AS PER II

CARGO CLAUSE (FPA/WA/ALL RISKS) AND PERILS AS PER INSTITUTE SRCC CLAUSES, WAR RISKS

INSTITUTE CLAUSE, COVER FOR CIF

FOR CIF VALUE PLUS __________ %

[ ] SIGNED COMMERCIAL INVOICES IN_1 ORIGINAL AND 2 DUPLICATE_COPIES.

47A ADDITIONAL CONDITIONS:

IMPORT IS COVERED UNDER NEGATIVE LIST/ NON NEGATIVE LIST.

ALL DOCUMENTS MUST MENTION OUR L/C NUMBER.

ALL TRANSPORT DOCUMENTS/ INVOICES MUST MENTION IMPORT LICENSE DETAILS.

USANCE PERIOD INTEREST FOR 60 DAYS SHALL BE BORNE BY THE BENEFICIARY AND FOR 30 DAYS

SHALL BE BORNE BY THE APPLICANT.

71B CHARGES

[ ] ALL CHARGES : [ ] (SPECIFY)

TO BENEFICIARYS A/C TO APPLICANTS A/C

48 PERIOD OF PRESENTATION __30___DAYS FROM THE DATE OF SHIPMENT

49

#

CONFIRMATION INSTRUCTION

[ ] WITH CONFIRMATION [ ] WITHOUT CONFIRMATION

57a CREDIT TO BE ADVICED TO THE

BENEFICIARY THROUGH (BANK)

The Hongkong and Shanghai Banking Corporation Limited,

Amar Avinash Corporate City, S.No. 11, Bund Garden Road,

Pune 411001.

SWIFT CODE : HSBCINBB

IN CONSIDRATION OF YOUR OPENING A LETTER OF CREDIT AS ABOVE, I/WE HEREBY UNDERTAKE TO

ACCEPT AND PAY IN DUECOURSE ALL DRAFTS DRAWN WITHIN THE TERMS THEREOF, AND/OR TO TAKE UP

AND PAY FOR ALL DOCUMENTS NEGOTIATED THERE UNDER ON PRESENTATION, AND IN DEFAULT TO

MY/OUR SO DOING YOU MAY SELL THE GOODS BEFORE OR AFTER ARRIVAL AND I/WE UNDERTAKE TO

REIMBURSE YOU FOR ANY SHORTFALL THAT MAY OCCUR AND I/WE HEREBY FURTHER UNDERTAKE

FORTHWITH ON DEMAND MADE BY YOU IN WRITING TO DEPOSIT WITH YOU SUCH SUM OR SECURITY OR

FURTHER SUM OR SECURITY AS YOU MAY FROM TIME TO TIME SPESIFY AS SECURITY FOR THE DUE

FULFILLMENT OF OUR OBLIGATION HEREUNDER AND ANY SECURITY SO DEPOSITED WITH YOU MAY BE

SOLD BY YOU ON YOUR GIVING REASONABLE NOTICE OF SALE TO US AND THE SAID SUM OR THE


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PROCEEDS OF SALE OF THE SECURITY MAY BE APPROPRIATED BY YOU IN OR TOWARDS SATISFACTION OF

OUR SAID OBLIGATION AND ANY LIABILITY OF OURS ARISING OUT OF THE NON-FULFILLMENT THEREOF.

YOU ARE TO HAVE ALIEN ON ALL GOODS, DOCUMENTS AND POLICIES AND PROCEEDS THEREOF FOR ANY

OBLIGATION OR LIABILITIES PRESENT OR FUTURE INCURRED BY YOU UNDER OR ARISING OUT OF THISCREDIT.

I/WE APPROVE OF THE NEGOTIATION OF DRAFTS DRAWN UNDER THIS CREDIT BEING CONFINED TO YOUR

BRANCHES.THE RELATIVE SHIPPING DOCUMENTS HAVE TO BE SURRENDERED TO ME/US AGAINST

PAYMENT/ACCEPTANCE.

IF AT ANY TIME AND FROM TIME TO HEREAFTER AND AT OUR REQUEST YOU ENHANCE THE AMOUNT OF

THE LETTER OF CREDIT OR AMEND ANY OF THE TERMS THEREOF (INCLUDING EXTENTION OF THE

VALIDITY OF THE CREDIT FOR SHIPMENT AND/OR NEGOTIATION OF DOCUMENTS). THEN

NOTWITHSTANDING THE AMOUNT OF THE ENHANCED LETTER OF CREDIT ISSUED BY YOU AND ANY OTHER

AMENDMENT EFFECTED THERETO AND OUR LIABILITY WILL BE FOR THE ENTIRE AMOUNT OF THE LETTEROF CREDIT TO BE ENHANCED AND/OR AMENDMENT AT OUR REQUESTED.

I/WE HEREBY AGREE AND DECLARE IN THE EVENT OF MY/OUR FAILING TO RETIRE THE BILLS DRAWN

UNDER L/C ON DUE DATES IN CASE OF USANCE BILLS WITH IN 10 DAYS FROM THE DATE OF RECEIPT OF

DOCUMENTSBY YOU IN CASE OF SITE BILL, YOU SHALL BE AT LIBERTY TO CRYSTALISE THE FOREIGN

CURRENCY RUPE LIABILITY THERE UNDER ON THE DUE DATE OR ON THE EXPIRY OF 10 TH DAYS AS THE

CASE MAY BE END CONVERT THE SAME TO AFGHANI RUPEE AT THE PREVAILIGN BILL SELLING RATE AT

THE CONTRACT RATE WHICHEVER APPLICABLE.

I/WE UNDERTAKE TO REIMBURSE TO YOU ON DEMAND THE AFGHANI RUPEE EQUIVALENT SO DETERMIND

TOGETHER WITH INTEREST THEREON AT NORMAL RATE FROM THE DATE OF NEGOTIATIONS TO THE DATE

CRYSTALLISATION AND THEREAFTER PANEL RATE AS APPLICABLE THERETO.

I/WE UNDERTAKE TO BOOK SUCH FORWARD CONTRACT WITH YOU IN AS MUCH AS THE BOOKING OF

FORWARD CONTRACTS FROM THE PART OF ARRANGMENT BY YOU UNDER THE L/C. IF I/WE BOOK FORWARD

CONTRACT WITH OTHER BANK AGAINS THIS LETTER OF CREDIT,I/WE AM.ARE LIABLE TO PAY TO YOU 1/4 %

COMMISSION IN LIEU OF EXCHANGE IN EDITION TO SWAP COST AND INTEREST RATE OF NEGOTIATIONS AT

THE FOREIGN CENTER TILL THE DATE OF CREDIT OF PROCEED IN YOUR NOSTRO ACCOUNT.

IN CASE I/WE DO NOT BOOK THE FORWARD CONTRACT, I/WE UNDERTAKE TO BUY THE REPLATIVE FOREIGN

EXCHANGE IN CONNECTION WITH RETIREMENT OF THE BILLS/ DOCUMENTS ETC., UNDER THE LETTER OF

CREDIT FROM YOU AT THE RULING RATE OF EXCHANGE, IN CASE FOREIGN EXCHANGE IN CONNECTION

WITH RETIREMENT OF THE BILLS/ DOCUMENTS ETC., IS BOUGHT COMMISSION IN LIEU OF EXCHANGE IN

ADDITION TO SWAP COST AND INTEREST FROM THE DATE OF NEGOTIATION AT THE FOREIGN CENTRE TILL

THE DATE OF PROCEEDS IN YOUR NOSTRO ACCOUNT.

I/WE UNDERTAKE TO SUBMIT APPROPRIATE EVIDENCE OF IMPORT AS PER REGULATIONS UNDER FEMA 1999,

AND RELATED EXCHANGE CONTROL REGULATIONS ISSUED BY RESERVE BANK OF INDIA, AS AMENDED

FROM TIME TO TIME.

NOTWITHSTANDING ANY OF ABOVE MENTIONED TERMS OF CREDIT, I/WE UNDERTAKE TO MAKE GOOD ANY

SUCH CHARGES/ EXPENSES INCURRED BY YOU NOT RECOVERABLE/ HONOURED BY THE BENEFICIARY AS

PER TERMS OF THIS CREDIT, IN THE COURSE OF ESTABLISHING THIS CREDIT/ NEGOTIATION OF DOCUMENTS

UNDER THIS CREDIT AND / OR ANY OTHER RELATED EVENT.

PLACE: SIGNATURE OF THE APPLICANT


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BANK GUARANTEE FOR NHAI:

Date 27.06.2011

IDBI BANK LTD.

Main Branch

New Delhi

Dear Sir,

You are requested to issue Bank Guarantee detailed below:

Name of Beneficiary Amount(INR) Valid upto

NATIONAL HIGHWAYS

AUTHORITY OF INDIA

G-5 & G-6, Sector-10,

Dwarka, New Delhi-110075

./- 26.01.2012

You are requested to Debit Guarantee Commission from our Account No.

.

Thanking you,

Yours faithfully,

ForC&C Constructions Ltd.

Director


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BANK GUARANTEE FOR BID SECURITY

1. In consideration of you, National Highways Authority of India, having its office at G-5 & 6,

Sector-10, Dwarka, New Delhi-110075, (hereinafter referred to as the "Authority", whichexpression shall unless it be repugnant to the subject or context thereof include its, successors and

assigns) having agreed to receive the Bid of C&C Constructions Ltd. (a Company registeredunder the Companies Act, 1956) and having its registered office at G-11, Hemkunt Chamber,

Nehru Place, New Delhi-110 019, (hereinafter referred to as the Bidder" which expression shall

unless it be repugnant to the subject or context thereof include its/their executors administrators,

successors and assigns), for Four Laning of Meerut-Bulandshahr section of NH-235 from

km 7.469 (design chainage km 7.469) to km 66.482 design chainage km 73.512) in the State

of Uttar Pradesh under NHDP Phase IVB through Public Private Partnership PPP) on

Design, Build, Finance, Operate and Transfer (DBFOT) Toll Basis Project on DBFOT basis

(hereinafter referred to as "the Project") pursuant to the RFP Document dated May, 2011 issued

in respect of the Project and other related documents including without limitation the draft

concession agreement (hereinafter collectively referred to as "Bidding Documents"), we IDBIBank Ltd., having our registered office at IDBI Tower, WTC Complex, Cuffe Parade,

Mumbai- 400 005 and one of its branches at 4th

Floor, Indian Red Cross Society Building,1, Red

Cross road, New Delhi- 110001 (hereinafter referred to as the "Bank"), at the request of the

Bidder, do hereby in terms of Clause 2.1.7 read with Clause 2.1.8 of the RFP Document,

irrevocably, unconditionally and without reservation guarantee the due and faithful fulfillment

and compliance of the terms and conditions of the Bidding Documents (including the RFP

Document) by the said Bidder and unconditionally and irrevocably undertake to pay forthwith to

the Authority an amount of Rs. 5,08,00,000/- (Rupees Five Crores Eight Lakhs Only)

(hereinafter referred to as the Guarantee) as our primary obligation without any demur,

reservation, recourse, contest or protest and without reference to the Bidder if the Bidder shall

fail to fulfill or comply with all or any of the terms and conditions contained in the said BiddingDocuments.

2. Any such written demand made by the Authority stating that the Bidder is in default of the due and

faithful fulfillment and compliance with the terms and conditions contained in the Bidding

Documents shall be final, conclusive and binding on the Bank. .

3. We, the Bank, do hereby unconditionally undertake to pay the amounts due and payable under this

Guarantee without any demur, reservation, recourse, contest or protest and without any reference to

the Bidder or any other person and irrespective of whether the claim of the Authority is disputed by the

Bidder or not, merely on the first demand from the Authority stating that the amount claimed is due to

the Authority by reason of failure of the Bidder to fulfill and comply with the terms and conditions

contained in the Bidding Documents including failure of the said Bidder to keep its Bid open duringthe Bid validity period as setforth in the said Bidding Documents for any reason whatsoever. Any

such demand made on the Bank shall be conclusive as regards amount due and payable by the

Bank under this Guarantee. However, our liability under this Guarantee shall be restricted to an

amount not exceeding Rs. 5,08,00,000/- (Rupees Five Crores Eight Lakhs Only).

4. This Guarantee shall be irrevocable and remain in full force for a period of 180 (one hundred and

eighty) days from the Bid Due Date inclusive of a claim period of 60 (sixty) days i.e. 26th

January,

2012 or for such extended period as may be mutually agreed between the Authority and the Bidder,and agreed to by the Bank, and shall continue to be enforceable till all amounts under this Guarantee

have been paid, but on or before 26th

January, 2012.


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5. We, the Bank, further agree that the Authority shall be the sole judge to decide as to whether the Bidder

is in default of due and faithful fulfillment and compliance with the terms and conditions contained in

the Bidding Documents including, inter alia, the failure of the Bidder to keep its Bid open during the

Bid validity period set forth in the said Bidding Documents, and the decision of the Authority that the

Bidder is in default as aforesaid shall be final and binding on us, notwithstanding any differences

between the Authority and the Bidder or any dispute pending before any Court, Tribunal, Arbitrator or

any other Authority.

6. The Guarantee shall not be affected by any change in the constitution or winding up of the Bidder or

the Bank or any absorption, merger or amalgamation of the Bidder or the Bank with any other person.

7. In order to give full effect to this Guarantee, the Authority shall be entitled to treat the Bank as the

principal debtor. The Authority shall have the fullest liberty without affecting in any way the liability

of the Bank under this Guarantee from time to time to vary any of the terms and conditions contained

in the said Bidding Documents or to extend time for submission of the Bids or the Bid validity period

or the period for conveying acceptance of Letter of Award by the Bidder or the period for fulfillment

and compliance with all or any of the terms and conditions contained in the said Bidding Documentsby the said Bidder or to postpone for any time and from time to time any of the powers exercisable by

it against the said Bidder and either to enforce or forbear from enforcing any of the terms and

conditions contained in the said Bidding Documents or the securities available to the Authority, and

the Bank shall not be released from its liability under these presents by any exercise by the Authority

of the liberty with reference to the matters aforesaid or by reason of time being given to the said

Bidder or any other forbearance, act or omission on the part of the Authority or any indulgence by the

Authority to the said Bidder or by any change in the constitution of the Authority or its absorption,

merger or amalgamation with any other person or any other matter or thing whatsoever which under

the law relating to sureties would but for this provision have the effect of releasing the Bank from its

such liability.

8. Any notice by way of request, demand or otherwise hereunder shall be sufficiently given or made if

addressed to the Bank and sent by courier or by registered mail to the Bank at the address set forth

herein.

9. We undertake to make the payment on receipt of your notice of claim on us addressed to at IDBI

BANK LTD., at 4th Floor, Indian Red Cross Society Building,1, Red Cross road, New Delhi- 110001,

and delivered at our above branch which shall be deemed to have been duly authorised to receive the

said notice of claim.

10. It shall not be necessary for the Authority to proceed against the said Bidder before proceeding against

the Bank and the guarantee herein contained shall be enforceable against the Bank, notwithstanding any

other security which the Authority may have obtained from the said Bidder or any other person andwhich shall, at the time when proceedings are taken against the Bank hereunder, be outstanding or

unrealised.

11. We, the Bank, further undertake not to revoke this Guarantee during its currency except with the

previous express consent of the Authority in writing.

12. The Bank declares that it has power to issue this Guarantee and discharge the obligations

contemplated herein, the undersigned is duly authorised and has full power to execute this Guarantee for

and on behalf of the Bank.


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13. For the avoidance of doubt, the Banks liability under this Guarantee shall be restricted to Rs.

.. The Bank shall be liable to pay the said amount or any part thereof only if the Authority

serves a written claim on the Bank in accordance with paragraph 9 hereof, on or before 26th January,

2012.

Signed and Delivered by IDBI BANK LTD., at 4th

Floor, Indian Red Cross Society Building,1, Red

Cross road, New Delhi- 110001.

By the hand of Mr./Ms ., its and

authorized official.

(Signature of the Authorized Signatory)

(Official Seal)


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Purchase under Hypothecation finance:

HP finance is another mode of financing the equipments for CCL Company. In

a HP transaction the loan amount is paid in installments over a fixed period of

time. Often to secure a deal a down payment has to be paid by the borrower to

the financer apart from hypothecating the equipment financed. The down

payment is 10-25 % of the cost of the equipment, which can be a large amount

for the company to shell out at once. The asset is legally the property of the

CCL. The lender also charges an interest on the amount borrowed and the

borrower bears the cost of maintenance. However one of the important

advantages of HP finance is that the borrower is allowed to claim the

depreciation and finance charges (interest) for tax advantages.

MODE OF CAPEX FINANCING:

OPERATING LEASE: It is the contractual arrangement generally for a

shorter period of time than the useful economic life of the leased resource, in

which the lessor does not transfer all the risks and reward associated with

ownership of the resource to the lessee. The lease rentals in an operating lease

are considered to be revenue expenditure. Operating lease also normally

P.O.ForEquipmentProcurement

LC. OwnFund. TermLoan. HPFinance. Opera_ngLease.


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includes services related to the leased resource such as insurance, maintenance,

operators, and technical advice. It is mainly considered as option when the term

usage of machine is for shorter period of time. Leasing has grown by leaps and

bounds in the eighties but it is estimated that hardly 1% of the industrial

investment in India is covered by the lease finance. The prospects of leasing in

India are good due to growing investment needs and scarcity of funds with

public financial institutions.

STEPS OF HP FINANCE:

vSearching for available/potential financers.vNegotiation on deal

Rate Tenure Terms

vAfter negotiation, formal sanction letter given by the financer.vDocumentation of loan:

Loan application form Loan agreement Board resolution PGSB (personal guarantee security bow), if so required. Post dated cheques for loan repayment. Margin money cheques to be paid as down payment.

vAfter documentation, financers responsibility is to: Issue D.O (delivery order) to the supplier of the equipment. Make payments to supplier on receipt of original invoices &

insurance.


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HP finance at C&C constructions:

Financing for equipments to be applied in the construction firm is carried out by

bankers or NBFC (non banking finance companies). The companies potential

financers include a range of firms with each having its own terms and rate ofinterest.

The potential financers of the company include:

vAxis bank.vICICI bankvHDFC bankvReliance capital ltd.vTata capital ltd.

vTata motors finance ltd.vMagma fincorp ltd.

Applicable interest rate: Rate of interest ranges from 9.5% to 12%.

Tenure: It ranges from 36 months to 60 months with one month to six-month

principle moratorium period.

Terms: Broad terms of agreement are standard & are not negotiable. Terms

related to rate, tenure, pre-closure charges (1% to 5%) can be negotiated to fit

the companies financial requirement.

However this mode of financing is practiced when the equipment cost is of

large amount and working capital is inadequate to meet the requirements.


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CORPORATE LOAN:

Achieving the goal of corporate finance requires that any corporate investment

be financed appropriately. Financing of infrastructure projects at C&C

constructions is carried out forstar projects i.e. those projects which presently

need investment so as to make them profitable in future. Presently these star

projects include recently bagged BOT projects at Mohali, Mokama- Munger

project, Patna- Bakhtiyarpur project, and Muzaffarpur- sonbarsa project. The

ongoing cash cow projects include those of BR-6, BR-8, and BR-9 etc. These

corporate loans are broadly of two types:

vShort term corporate loans- are the loans issued for a period of 12months along with a moratorium period i.e. a period for which EMI ispaid irrespective of interest.

vLong-term corporate loans- is loans, which can range from a periodexceeding 12 months

Rate of interest:

The rate of interest charged on such loans is determined by rating rationale of

the body carrying out the rating process for e.g. in case of C&C construction

rating is done by CARE, CRISIL etc. This rating as done by CARE for long-

term loans is AAA and for short-term loans is PR-2+. Facilities with this

rating have adequate capacity for timely payment of short-term debt obligations

and carry higher credit risk. The rate of interest may broadly be classified as:-

vBASE RATE: The minimum rate of interest that is charged by the bank.

For e.g. base rate for SBI is around 9.25%.vPRIME LENDING RATE: It is the average rate of interest charged by

the bank. For e.g. L&T Infra PLR is 14.25% spread. Companies pastperformances, financial data, and ranking mainly determine the spread byexternal agencies etc.

The working capital limits forFUND BASED AND NON FUND BASED

units as on march 2011 were 440 crores & 3110 crores respectively. This is


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carried out by consortium banking arrangement facility comprising of 13 banks

with SBI being the lead bank.

PROCESS OF ISSUE OF CORPORATE LOAN:

vSearching for potential financers. In case of C&C constructions, itincludes nationalized banks such as SBI, AXIS, HSBC, and STANDARD

CHARTERED etc. or other private finance sources such as L&T infra,fincorp, Tata capital etc.

vFormal proposal is made which includes:

End use of loan amount. Rate of interest- may range between 11-13% Tenure- either short-term or long-term. Loan security. Financials.

v Negotiations- Broad terms of agreement are standard & are notnegotiable. Terms related to rate, tenure, pre-closure charges (1% to 5%)can be negotiated to fit the companies financial requirement.

vSanction letter from bank or NBFC.


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CONCLUSION

Working capital finance for a capital-intensive infrastructure is carried out by

fund based and non-fund based sources. However the company is also provided

with choice of fungiblity i.e. percentage of NFB sources which can be converted

to FB sources as allowed by the banks or NBFCs. After careful analysis of

options and negotiation of terms and interest rates and tenure of payments, the

company plans out its working capital finance sources.

The drawing power of the company is calculated based on monthly selectoperation data(MSOD) for stock & inventory calculations and preparation of

CMA (credit monitoring assessment) statement. These cumulatively determine

the MPBF (maximum permissible bank finance). The bank also looks at DSCR

(Debt Service Covering Ratio).

The credit limit assigned to company depends upon the ranking by private

bodies such as CARE, CRISIL etc. & financial past performances as indicated

in quarterly results.

Bank guarantee is practiced for bid securities, performance securities,

mobilization security, & retention securities in infrastructure sector.

The other fund-based sources of working capital include PCFC, which mainly

deals with international competitive bidding and funding through international

bodies such as ADB, IMF etc.


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INTERPRETATION

Working capital finance for a capital-intensive infrastructure is carried out by

fund based and non-fund based sources. However the company is also provided

with choice of fungiblity i.e. percentage of FB sources which can be converted

to NFB sources as allowed by the banks or NBFCs. After careful analysis of

options and negotiation of terms and interest rates and tenure of payments, the

company plans out its working capital finance sources.

After analyzing all the option available to the company, the final call is that all

these options depend on situation. We cant say any of the above option is the

best one and will work in each and every situation.