Certified Credit Research Analyst - Level 2 exams.
Question - (Single Choise)
Mark Construction Company (MCC) has bagged a contract for construction of a large dam and hydro
power project on river Shivna in Madhya Pradesh (MP). The project is also of relevance from the
irrigation perspective due to its location and as per the agreement MCC will have to undertake
construction of web of canals, approach road to dam, power house and other ancillary units. MCC is
promoted by Mr. Thomas Mark, who is a MP from the ruling party which recently formed
government in MP. Historically, MCC has been engaged into construction of rural roads, small bridges
and railway platforms on contract basis for the Government. MCC will have a separate special
purpose vehicle (SPV) floated for this venture.
The hydro power project comes under the public private partnership scheme of the Government of
MP, where in the private partner builds owns operates and transfers (BOOT) the hydro power plant.
The detailed terms of the hydro power project agreement are as follows:
1. The construction of the dam, canals and hydro power plant shall be undertaken by the contractor.
The
Government of MP will have to acquire land which will submerge on construction of dam and shall
rehabilitate the owners of land.
2. MCC shall have right to operate the hydro power project from date of commencement of
commercial operations (DCCO) for a period of 20 years and shall transfer the project to Government
thereafter. Further,
SPV shall be tax exempt for a period of five years from DCCO i.e. FY17 - FY21.
3. The power project is of 600 megawatts (MW) shall comprise 4 units of 150 MW each. The
estimated cost of project is about INR3, 500 Million to be spent over a period of 4 year(s) the project
is estimated to be commercially operational by April 1, 2016 with two units operational on same day
and one unit each will be operational on April 1, 2017 and April 1, 2018.
4. Means of finance:
Means of Finance INR Million
Government Aid (To be classified as Equity) 500Equity 900 Debt 2100
5. Amount if expenditure estimated in various years is as follows:
Debt shall bear a fixed rate of interest of 10% and all interest till DCCO shall be added to the
principal. The expected principal along with capitalized interest is expected to be INR2, 400 Million
(i.e.INR2100 Million debt plus INR300 Million capitalized interest). The repayment of the same shall
be in 12 equated annual installments starting from FY17.
Brief projections for the period of FY17 to FY21 are given below:
Developments as on March 31, 2015
The project manager for the SPV made following comments at a press conferee on March 31, 2015:
As you all are aware, we were running bang on schedule till we last met on December 21, 2014. From
today we are just left with one more year to complete the project in time. However, the flash floods
which struck our dam site on this March 15, 2015 have created havoc in the region. I shall not point
out the loss of lives in the region as you all are well aware of those. Our project has also been badly
hit due to the same and we have been assessing the damage over the last one week. After analyzing
damage, we have made changes in project schedule. Now we will be making only one unit of 150
MW operational on April 1, 2016 and 1 unit each will be added in each of subsequent year(s).
Development as on September 30, 2015
Post the flash floods, lot of environmentalists started raising issues of changes in environment due to
construction of large number of dams. A few Public Interest Litigations (PILs) have been filed in
various courts.
Honorable High Court of MP on September 27, 2015, banned construction of any dams in the region
and banned permissions for new dams till next hearing scheduled on November 30, 2015. MCC in its
press release has indicated that they will apply to the higher court on the matter.
As a credit analyst on March 31, 2012, which of the following sets of risks are you going to put in your
credit appraisal note?
Question - (Single Choise)
Mark Construction Company (MCC) has bagged a contract for construction of a large dam and hydro
power project on river Shiva in Madhya Pradesh (MP). The project is also of relevance from the
irrigation perspective due to its location and as per the agreement MCC will have to undertake
construction of web of canals, approach road to dam, power house and other ancillary units. MCC is
promoted by Mr. Thomas Mark, who is a MP from the ruling party which recently formed
government in MP. Historically, MCC has been engaged into construction of rural roads, small bridges
and railway platforms on contract basis for the Government. MCC will have a separate special
purpose vehicle (SPV) floated for this venture.
The hydro power project comes under the public private partnership scheme of the Government of
MP, where in the private partner builds owns operates and transfers (BOOT) the hydro power plant.
The detailed terms of the hydro power project agreement are as follows:1. The construction of the
dam, canals and hydro power plant shall be undertaken by the contractor. The
Government of MP will have to acquire land which will submerge on construction of dam and shall
rehabilitate the owners of land.
2. MCC shall have right to operate the hydro power project from date of commencement of
commercial operations (DCCO) for a period of 20 years and shall transfer the project to Government
thereafter. Further,
SPV shall be tax exempt for a period of five years from DCCO i.e. FY17 - FY21.
3. The power project is of 600 megawatts (MW) shall comprise 4 units of 150 MW each. The
estimated cost of project is about INR3, 500 Million to be spent over a period of 4 year(s) the project
is estimated to be commercially operational by April 1, 2016 with two units operational om same day
and one unit each will be operational on April 1, 2017 and April 1, 2018.
4. Means of finance:
Means of Finance INR Million
Government Aid (To be classified as Equity) 500Equity 900 Debt 2100
5. Amount if expenditure estimated in various years is as follows:
Debt shall bear a fixed rate of interest of 10% and all interest till DCCO shall be added to the
principal. The expected principal along with capitalized interest is expected to be INR2, 400 Million
(i.e.INR2100 Million debt plus INR300 Million capitalized interest). The repayment of the same shall
be in 12 equated annual installments starting from FY17.
Brief projections for the period of FY17 to FY21 are given below:
Developments as on March 31, 2015
The project manager for the SPV made following comments at a press conferee on March 31, 2015:
As you all are aware, we were running bang on schedule till we last met on December 21, 2014. From
today we are just left with one more year to complete the project in time. However, the flash floods
which struck our dam site on this March 15, 2015 have created havoc in the region. I shall not point
out the loss of lives in the region as you all are well aware of those. Our project has also been badly
hit due to the same and we have been assessing the damage over the last one week. After analyzing
damage, we have made changes in project schedule. Now we will be making only one unit of 150
MW operational on April 1, 2016 and 1 unit each will be added in each of subsequent year(s).
Development as on September 30, 2015
Post the flash floods, lot of environmentalists started raising issues of changes in environment due to
construction of large number of dams. A few Public Interest Litigations (PILs) have been filed in
various courts.
Honorable High Court of MP on September 27, 2015, banned construction of any dams in the region
and banned permissions for new dams till next hearing scheduled on November 30, 2015. MCC in its
press release has indicated that they will apply to the higher court on the matter.
Based on the initial projections, do scenario analysis assuming only 75% capacity is utilized in FY17
and FY18 and thereby revenues will be proportionally reduced.
Compute DSCR under such scenario for FY17 and FY18, assuming other things remain constant?
Question - (Single Choise)
Mark Construction Company (MCC) has bagged a contract for construction of a large dam and hydro
power project on river Shivna in Madhya Pradesh (MP). The project is also of relevance from the
irrigation perspective due to its location and as per the agreement MCC will have to undertake
construction of web of canals, approach road to dam, power house and other ancillary units. MCC is
promoted by Mr. Thomas Mark, who is a MP from the ruling party which recently formed
government in MP. Historically, MCC has been engaged into construction of rural roads, small bridges
and railway platforms on contract basis for the Government. MCC will have a separate special
purpose vehicle (SPV) floated for this venture.
The hydro power project comes under the public private partnership scheme of the Government of
MP, where in the private partner builds owns operates and transfers (BOOT) the hydro power plant.
The detailed terms of the hydro power project agreement are as follows:
1. The construction of the dam, canals and hydro power plant shall be undertaken by the contractor.
The
Government of MP will have to acquire land which will submerge on construction of dam and shall
rehabilitate the owners of land.
2. MCC shall have right to operate the hydro power project from date of commencement of
commercial operations (DCCO) for a period of 20 years and shall transfer the project to Government
thereafter. Further,
SPV shall be tax exempt for a period of five years from DCCO i.e. FY17 - FY21.
3. The power project is of 600 megawatts (MW) shall comprise 4 units of 150 MW each. The
estimated cost of project is about INR3, 500 Million to be spent over a period of 4 year(s) the project
is estimated to be commercially operational by April 1, 2016 with two units operational om same day
and one unit each will be operational on April 1, 2017 and April 1, 2018.
4. Means of finance:
Means of Finance INR Million
Government Aid (To be classified as Equity) 500Equity 900 Debt 2100
5. Amount if expenditure estimated in various years is as follows:
Debt shall bear a fixed rate of interest of 10% and all interest till DCCO shall be added to the
principal. The expected principal along with capitalized interest is expected to be INR2, 400 Million
(i.e.INR2100 Million debt plus INR300 Million capitalized interest). The repayment of the same shall
be in 12 equated annual installments starting from FY17.
Brief projections for the period of FY17 to FY21 are given below:
Developments as on March 31, 2015
The project manager for the SPV made following comments at a press conferee on March 31, 2015:
As you all are aware, we were running bang on schedule till we last met on December 21, 2014. From
today we are just left with one more year to complete the project in time. However, the flash floods
which struck our dam site on this March 15, 2015 have created havoc in the region. I shall not point
out the loss of lives in the region as you all are well aware of those. Our project has also been badly
hit due to the same and we have been assessing the damage over the last one week. After analyzing
damage, we have made changes in project schedule. Now we will be making only one unit of 150
MW operational on April 1, 2016 and 1 unit each will be added in each of subsequent year(s).
Development as on September 30, 2015
Post the flash floods, lot of environmentalists started raising issues of changes in environment due to
construction of large number of dams. A few Public Interest Litigations (PILs) have been filed in
various courts.
Honorable High Court of MP on September 27, 2015, banned construction of any dams in the region
and banned permissions for new dams till next hearing scheduled on November 30, 2015. MCC in its
press release has indicated that they will apply to the higher court on the matter.
After the developments of March 31, 2015, assuming revenues are directly linked to the power
production and the EBITDA margins remain intact for the year, as were projected, compute the
revised interest coverage ratio dfor FY17 and FY18?
Question - (Single Choise)
Mark Construction Company (MCC) has bagged a contract for construction of a large dam and hydro
power project on river Shivna in Madhya Pradesh (MP). The project is also of relevance from the
irrigation perspective due to its location and as per the agreement MCC will have to undertake
construction of web of canals, approach road to dam, power house and other ancillary units. MCC is
promoted by Mr. Thomas Mark, who is a MP from the ruling party which recently formed
government in MP. Historically, MCC has been engaged into construction of rural roads, small bridges
and railway platforms on contract basis for the Government. MCC will have a separate special
purpose vehicle (SPV) floated for this venture.
The hydro power project comes under the public private partnership scheme of the Government of
MP, where in the private partner builds owns operates and transfers (BOOT) the hydro power plant.
The detailed terms of the hydro power project agreement are as follows:
1. The construction of the dam, canals and hydro power plant shall be undertaken by the contractor.
The
Government of MP will have to acquire land which will submerge on construction of dam and shall
rehabilitate the owners of land.
2. MCC shall have right to operate the hydro power project from date of commencement of
commercial operations (DCCO) for a period of 20 years and shall transfer the project to Government
thereafter. Further,
SPV shall be tax exempt for a period of five years from DCCO i.e. FY17 - FY21.
3. The power project is of 600 megawatts (MW) shall comprise 4 units of 150 MW each. The
estimated cost of project is about INR3, 500 Million to be spent over a period of 4 year(s) the project
is estimated to be commercially operational by April 1, 2016 with two units operational om same day
and one unit each will be operational on April 1, 2017 and April 1, 2018.
4. Means of finance:
Means of Finance INR Million
Government Aid (To be classified as Equity) 500Equity 900 Debt 2100
5. Amount if expenditure estimated in various years is as follows:
Debt shall bear a fixed rate of interest of 10% and all interest till DCCO shall be added to the
principal. The expected principal along with capitalized interest is expected to be INR2, 400 Million
(i.e.INR2100 Million debtplus INR300 Million capitalized interest). The repayment of the same shall
be in 12 equated annual installments starting from FY17.
Brief projections for the period of FY17 to FY21 are given below:
Developments as on March 31, 2015
The project manager for the SPV made following comments at a press conferee on March 31, 2015:
As you all are aware, we were running bang on schedule till we last met on December 21, 2014. From
today we are just left with one more year to complete the project in time. However, the flash floods
which struck our dam site on this March 15, 2015 have created havoc in the region. I shall not point
out the loss of lives in the region as you all are well aware of those. Our project has also been badly
hit due to the same and we have been assessing the damage over the last one week. After analyzing
damage, we have made changes in project schedule. Now we will be making only one unit of 150
MW operational on April 1, 2016 and 1 unit each will be added in each of subsequent year(s).
Development as on September 30, 2015
Post the flash floods, lot of environmentalists started raising issues of changes in environment due to
construction of large number of dams. A few Public Interest Litigations (PILs) have been filed in
various courts.
Honorable High Court of MP on September 27, 2015, banned construction of any dams in the region
and banned permissions for new dams till next hearing scheduled on November 30, 2015. MCC in its
press release has indicated that they will apply to the higher court on the matter.
As a credit rating analyst on September 30, 2015, on receipt of the high court order, what rating
action you will take:
Question - (Single Choise)
Mark Construction Company (MCC) has bagged a contract for construction of a large dam and hydro
power project on river Shivna in Madhya Pradesh (MP). The project is also of relevance from the
irrigation perspective due to its location and as per the agreement MCC will have to undertake
construction of web of canals, approach road to dam, power house and other ancillary units. MCC is
promoted by Mr. Thomas Mark, who is a MP from the ruling party which recently formed
government in MP. Historically, MCC has been engaged into construction of rural roads, small bridges
and railway platforms on contract basis for the Government. MCC will have a separate special
purpose vehicle (SPV) floated for this venture. The hydro power project comes under the public
private partnership scheme of the Government of MP, where in the private partner builds owns
operates and transfers (BOOT) the hydro power plant. The detailed terms of the hydro power project
agreement are as follows:
1. The construction of the dam, canals and hydro power plant shall be undertaken by the contractor.
The
Government of MP will have to acquire land which will submerge on construction of dam and shall
rehabilitate the owners of land.
2. MCC shall have right to operate the hydro power project from date of commencement of
commercial operations (DCCO) for a period of 20 years and shall transfer the project to Government
thereafter. Further,
SPV shall be tax exempt for a period of five years from DCCO i.e. FY17 - FY21.
3. The power project is of 600 megawatts (MW) shall comprise 4 units of 150 MW each. The
estimated cost of project is about INR3, 500 Million to be spent over a period of 4 year(s) the project
is estimated to be commercially operational by April 1, 2016 with two units operational om same day
and one unit each will be operational on April 1, 2017 and April 1, 2018.
4. Means of finance:
Means of Finance INR Million
Government Aid (To be classified as Equity) 500Equity 900 Debt 2100
5. Amount if expenditure estimated in various years is as follows:
Debt shall bear a fixed rate of interest of 10% and all interest till DCCO shall be added to the
principal. The expected principal along with capitalized interest is expected to be INR2, 400 Million
(i.e.INR2100 Million debt plus INR300 Million capitalized interest). The repayment of the same shall
be in 12 equated annual installments starting from FY17.
Brief projections for the period of FY17 to FY21 are given below:
Developments as on March 31, 2015
The project manager for the SPV made following comments at a press conferee on March 31, 2015:
As you all are aware, we were running bang on schedule till we last met on December 21, 2014. From
today we are just left with one more year to complete the project in time. However, the flash floods
which struck our dam site on this March 15, 2015 have created havoc in the region. I shall not point
out the loss of lives in the region as you all are well aware of those. Our project has also been badly
hit due to the same and we havebeen assessing the damage over the last one week. After analyzing
damage, we have made changes in project schedule. Now we will be making only one unit of 150
MW operational on April 1, 2016 and 1 unit each will be added in each of subsequent year(s).
Development as on September 30, 2015
Post the flash floods, lot of environmentalists started raising issues of changes in environment due to
construction of large number of dams. A few Public Interest Litigations (PILs) have been filed in
various courts.
Honorable High Court of MP on September 27, 2015, banned construction of any dams in the region
and banned permissions for new dams till next hearing scheduled on November 30, 2015. MCC in its
press release has indicated that they will apply to the higher court on the matter.
On receiving the credit proposal, the banker informed the company that in FY17 the DSCR is below
unity, which is not acceptable to bank. Which of the following is correct?
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