Access to cheaper and better technology Mitigation : Co-opetation Launching the cable system quickly Upgrading the existing technology
SVKM's NMIMS University
Completion Delays 6
Due to Equipment supply delay Mitigation: Signing supply contracts, selecting credit worthy and well known suppliers
Due to unavailability of cable ships to install cables
and repeaters and for further maintenance
Mitigation: Book cable ships in advance
Due to access to landing stations, right-of-way
permits
Mitigation: Landing party agreements – shared ownership with landing station owners
SVKM's NMIMS University
7
Sovereign Risk : Changes in government policies Mitigation: Higher leverage from various lending institutions Hold Up Risk: Enter into long term contracts for Landing stations Operational Risk: Cable failures due to shipping,
dredging and fishing activities
Mitigation: Hiring cable ship companies with high expertise level in maintenance
SVKM's NMIMS University
Question : 8
What are your recommendations in terms of: Ownership structure Capital structure Organization structure Board structure Management compensation?
SVKM's NMIMS University
Number of sponsors in Project Finance 9
Source: economic motivations for project finance (Harvard Business school) SVKM's NMIMS University
Proposed Ownership structure 10
Sponsors/Partners
Shareholding
Asset to table
Telstra
40%
Major sponsor
AT&T
15%
Landing Station
Japan Telecom
15%
Landing Station
NTT
20%
Landing Station + Capacity
Teleglobe
10%
Capacity
Need to have good equity contribution to avoid “Hold Up” in the future
SVKM's NMIMS University
Capital Structure in Project Finance 11
Source: economic motivations for project finance (Harvard Business school) SVKM's NMIMS University
Capital Structure 12
Total Capital Required: Debt : 85% ($ 482 million) Equity : 15% ($ 85 million)
SVKM's NMIMS University
Reasons for High Leverage 13
Limit the managerial discretion over project cash
flow Shorter Payback period Mitigate sovereign risk by reducing reported profits “Paradox of infrastructural investment” Rather than increasing returns on project, a better solution is to reduce the risk by careful structuring As sovereign risk falls, the appropriate required return falls SVKM's NMIMS University
Organizational Structure 14 Board of Directors
Chief Executive Officer
Head of Administration Executive Manager
SVKM's NMIMS University
Chief Financial Officer
Technical Services Executive Manager
Operations Executive Manager
Head of Sales and Marketing
Finance Manager
Regional Operations Manager Australia
Regional Operations Manager Japan
Regional Operations Manager Guam
Board Structure 15
Source: economic motivations for project finance (Harvard Business school) SVKM's NMIMS University
Proposed Board Structure 16
Partner
No. of directors
Telstra
2
AT&T
2
Japan Telecom
2
Teleglobe
2
Lending Institution
1 or 2
SVKM's NMIMS University
Proposed Compensation Structure 17
Base Salary – For skills and experience Executive Bonus – As per performance (0% to 50%) Long term incentives – Stock options or cash
rewards
SVKM's NMIMS University
Question: 18
Can Take-Over Finance be used to solve the financial
structure issue?
SVKM's NMIMS University
Take Over Finance 19
Tripartite Arrangement between Project Company Lender Financial Institution(FI) to fund long term infrastructure projects FI takes over the outstanding loan from the Lender
on a predetermined basis
SVKM's NMIMS University
Advantages 20
Project Developer
• Gets Finances for long term Projects • Need not go and search for refinancer
Lender
• Asset Liability Management • Frees the funds to lend to other projects
Financial Institution
• Economic & Social Development • Faster Infrastructure Creature
