financial services and merchant banking

8/14/2019 Financial Services and Merchant Banking

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Table of Contents

Sr. No. Chapter name Page no.

1 Company Profile 22 History Background 33 Industry Structure & Development 44 Industry Outlook 4

5 Indian Sugar Industry at a Glance 46 Sugar Development Fund 5

7 Registration of Manufacture/Suppliers 108 Future of SDF 12

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COMPANY PROFILE

YEAR OF INCORPORATION: IFCI was changed from a statutory corporation to a public

limited company in 1993, for the purpose of providing greater flexibility to respond to the

rapidly changing financial system and to access the capital market. The corporation was

given a new certificate of incorporation with the assets and liabilities of the erstwhile

Industrial Finance Corporation of India Limited (IFCI) in the same year 1993. IFCI is

engaged in providing credit to all segments of the Indian industry. The Company is involved

in the activities of Project Finance, Financial Services, Non-Project Specific Assistance, and

Nodal Agency for Monitoring of Sugar Development Fund (SDF) Loans and CorporateAdvisory Services.

IFCI OVERVIEW & SERVICES AT A GLANCE

The Company is involved in the activities of Project Finance, Financial Services, Non-Project

Specific Assistance, and Nodal Agency for Monitoring of Sugar Development Fund (SDF)

Loans and Corporate Advisory Services.

NODAL AGENCY FOR MONITORING SUGAR DEVELOPMENT FUND (SDF)

LOANS

The Sugar Development Fund was instituted by the Govt of India (GOI) in 1982 with the

objective of rendering financial assistance through loans at concessional rates for

rehabilitation and modernization of sugar factories as well as for sugarcane development. The

scope has subsequently been enlarged to cover projects involving bagasse based co-

generation of power and production of anhydrous alcohol or ethanol from molasses

undertaken by Sugar Units. IFCI has been the Nodal Agency for monitoring of SUGAR

DEVELOPMENT FUND (SDF) loans for projects related to modernization and expansion,

co-generation of power and production of alcohol/ethanol in the private sector.

CORPORATE ADVISORY & INFRASTRUCTURE SERVICES

At a time, when India is throwing up investment avenues in newer sectors and projects, there

is a critical need to provide specialised advisory services to the Indian Corporate Sector in

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their efforts towards Industrial Advancement. IFCI with its team of seasoned professionals

and rich experience of over six decades in the financial sector is uniquely positioned to fulfil

this need. As a catalyst of Industrial growth, IFCI provides the following Advisory Services:

Investment appraisal of Navratna (most valued public sector companies) Companies.

INFRASTRUCTURE ADVISORY

IFCI offers a range of services to the Infrastructure Sector, with specific emphasis on roads,

ports, power and urban infrastructure. Total solutions catering to the specific needs of clients,

starting from the stage of investment identification to financial closure are provided.

HISTORY BACKGROUND

IFCI was given a new certificate of incorporation with the assets and liabilities of the

erstwhile Industrial Finance Corporation of India Limited (IFCI) in the year 1993. IFCI is

engaged in providing credit to all segments of the Indian industry. The Company is involved

in the activities of Project Finance, Financial Services, Non-Project Specific Assistance, and

Nodal Agency for Monitoring of Sugar Development Fund (SDF) Loans and Corporate

Advisory Services. It was proposed to make entry into new business areas such as stock

broking, asset management, investor services, insurance etc. The name of the Company has

been changed from The Industrial Finance Corporation of India Ltd to IFCI Ltd with effect

from 27th October of the year 1999. During the year 1999-2000, the IFCI Investors Services

Ltd and IFCI Custodial Services Ltd., wholly owned subsidiaries were amalgamated with

another IFCI Financial Services Ltd (another wholly owned subsidiary). During the year

2000, ICRA Ltd downgraded the long-term and medium-term ratings of its principal

promoter IFCI Ltd. by two notches to `LAA-' and `MAA-' from the earlier `LAA+' and

`MAA+'. In the same year 2000, IFCI and the Dubai-based Mashreq Bank Group have signed

an agreement for the first trance of a million syndicated loans. Based on the terms of the

share purchase agreement dated March 26, 2001 between the company & Shri OP Lohia,

promoter of IRSL, IFCI Ltd executed a negotiated deal in April 1st of the year 2002 with

Yield Securities & Credits Pvt Ltd for sale of 16,46,579 equity shares of Indorama Synthetics

India Ltd (IRSL)(being 0.99% of the paid up capital) and with Virgin Securities & Credits

Pvt Ltd for the sale of 16,46,580 equity shares of Indorama Synthetics India Ltd (being

0.99% of the paid up capital) at Rs 12.0445 per share. During the year 2003, the company

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took over Arihant Industries Export Oriented Unit (EOU) under the securitisation Act. In the

year 2004, the company merged with Punjab National Bank (PNB). During the period 2005-

06, the company was conferred an award for 'Corporate Excellence' instituted by the Amity

Business School and presented every year to select corporate for outstanding performance in

various areas. Also in the same year 2006-07, the company's Net Non Performing Assets

(NPAs) achieved the status of zero level. As of May 2008, IFCI forayed into factoring

business, acquired an additional 46.65% stake in Foremost Factors (FFL), as a result

increased its holding in the company to 96.49%, the company plans to buy remaining stock

and make it as subsidiary

INDUSTRY STRUCTURE & DEVELOPMENT

The Corporate finance and finacial services sectors in India are hightly competitive.The

global meltdown has affected the overall industrial and economic performance of the country.

Over the past few years, IFCI has consolidated itself with aggressive NPA recoveries and

liability restructuring, whereby, inspite of overall adverse scenario, it has been able to move

aggressively and register huge growth in the approval and disbursement of fresh assistance

for project finance to stimulate various industries in India. Acquisition of NPAs from banks

and their resolutions has also been embarked upon.

INDUSTRY OUTLOOK

The Impact of global downturn was felt in India during the fiscal 2009. Even with a

depreciating Indian Rupee, exports plunged by a record 33% for six consecutive months in

March 2009. However, because of the strong regulatory framework and the well managed

banking system, the resilience shown by our financial markets was impressive and the impact

of the crisis that originated in US was less severe in India, as compared to the other emerging

economies. The vast domestic demand continued to play a critical role in India getting less

affected from global turbulence IFCI has major exposure to Power, Telecom and other

infrastructure, which performed satisfactorily when viewed in the backdrop of the global

economic slowdown. The prospects of other sectors in which company has major exposure is

Iron and steel and textiles which is also getting improved.

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INDIAN SUGAR INDUSTRY AT A GLANCE

India is the largest producer of sugar in the world and produces around 18.5 million tones of

white plantation sugar per annum. Sugar industry is the second largest manufacturing

industry in India. About 500 thousand people are directly employed in the sugar industry.

Including farmers and their family members, around 45 million people constituting 7.5% of

the rural population of India, depend on sugar industry for their livelihood. The industry

contributes about Rs. 16 billion ($328.5 mn) to the Central and State exchequers. India is also

the largest consumer of sugar and consumes around 16 million tones of sugar per annum.

SUGAR DEVELOPMENT FUND (SDF)

The Sugar Development Fund was instituted by the Govt of India (GoI) in 1982 with the

objective of rendering financial assistance through loans at concessional rates for

rehabilitation and modernization of sugar factories as well as for sugarcane development. The

scope has subsequently been enlarged to cover projects involving bagasse based co-

generation of power and production of Anhydrous alcohol or ethanol from molasses

undertaken by Sugar Units.

SUGAR DEVELOPMENT FUND ACT, 1982

The object of the Sugar Development Fund, 1982 (briefly the SDF Act) in the formation of

the Sugar Development Fund to be applied for the purpose of rendering financial assistance

through loans at concessional rates for rehabilitation and modernisation of sugar factories as

well as for sugarcane development and for encouraging research aimed at development of

sugar industry by making grant. The Fund shall also be applied for defraying expenditure for

the purpose of building up and maintenance of buffer stock of sugar with a view to stabilising

price of sugar.

SUGAR DEVELOPMENT FUND RULES , 1983

The Sugar Development Fund Rules, 1983 were made in exercise of the powers conferred by

Section 9 of the SDF Act, 1982, to provide for (a) the manner in which any loss or grants out

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of the Fund and the terms and conditions thereof, (b) the manner and form in which

applications are to be made; (C) the composition of the committee and the procedure to be

followed by it in the discharge of its functions and (d) the form in which and the period

within which statistical and other information may be furnished by sugar factories.

From 1st November, 1982 the amount of cess payable by sugar factories is Rs. 14/- per

quintal of sugar.

IFCI AND SUGAR FUND

IFCI has been appointed advisor for the privatisation of 33 ailing mills under the Uttar

Pradesh Sugar Corporation.

During the year 2005-06, the Corporation has sanctioned and released assistance of

Rs.90323.20 lakhs and Rs.80011.46 lakhs respectively, for the development of

cooperative sugar industry. Cumulatively, it has provided assistance of Rs.276749.20

lakhs up to 31.03.2006.

During 2005-06, SDF have sanctioned and released assistance of Rs.1276.20 lakhs

and Rs.1101.00 lakhs, respectively, for the modernisation-cum- expansion projects

implemented with IFCIs assistance. This assistance has been routed through IFCI.

SDF has up to 31.03.2006, provided assistance of Rs.34920.56 lakhs through IFCI.

Description of Scheme

IFCI has been promoting establishment and development of sugar factories so as to help them

in achieving the primary objective of ensuring remunerative prices to the farmers for

sugarcane and also to create buffer stock for sugar by providing the following assistance:

i) Investment loan assistance to the State Governments to supplement their

resources for equity participation in new co-operative sugar mills.

ii) Term loan assistance to the existing co-operative sugar mills for modernisation/

expansion including setting up of effluent treatment plants for pollution control.

iii) Term loan assistance for establishment of sugar by-product units.

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iv) Margin Money assistance to the existing co-operative sugar mills.

v) Short/medium term loan towards working capital requirements of coop. Sugar

mills.

2. Details about dovetailing Govt. of India scheme (s)

i) The scheme for providing term loan assistance to existing coop. sugar mills for

modernisation/expansion and also setting up of by-product units are dovetailed with the

soft loan assistance from the SDF of the Union Ministry of Consumer Affairs, Food &

Public distribution towards meeting the shortfall in promoters contribution. SDF

assistance would be routed through IFCI even if the term loan is provided by other

financial institution or bank.

ii) IFCI is also recognised as one of the financial institution for providing assistance

under a scheme implemented by the Sugar Technology Mission (STM) in the Department

of Science and Technology, Govt. of India along with soft loan from SDF for

technological upgradation in the sugar industry with a focus on improvement in level of

technology in the various areas like reducing sugar losses, saving energy, improvement in

sugar quality and capacity optimisation.

Eligibility criteria and procedure involved

A. Investment loan for share capital participation in new cooperative sugar factories.

In view of the high project cost, limited resources available with the farmers and in

order to promote cooperative sugar factories, the State Govts. have been contributing

to the share capital of new cooperative sugar factories. This scheme is intended at

supplementing the resources of State Govts. to enable them to contribute to the share

capital of cooperative sugar factories so as to expedite the project implementation.

Under the scheme, Corporation provides investment loan assistance to the State

Govts. up to 100% share of their stipulated equity, which is equivalent to 30% of the

project cost of new mill. 60% of the project cost is raised as term loan from banks/

financial institutions and remaining 10% is to be contributed by farmer members.

Eligibility Criteria for Assisting New Mills

Term loans tied up

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Placed orders for plant and machinery

Adequate sugarcane potential

Techno-economic feasibility

B. Term loan assistance for Modernisation-cum-Expansion of cooperative sugar mills.

In order to improve overall performance of the existing cooperative sugar factories,

IFCI has been providing assistance for implementing modernisation-cum-expansion

of sugar factories up to a capacity of 10000 TCD. The debt-equity ratio is normally

1:1. The Sugar Development Fund (SDF) of the Ministry of Food, Public Distribution

and Consumer Affairs, Govt. of India, provides soft loan to meet shortfall in

promoters' contribution towards equity participation up to a maximum of 40% of the

project cost, depending on financial resources of the coop. Sugar factories. The

balance not less than 10% of the project cost is to be met by the society either by way

of raising as additional shares capital or from its internal accruals.

IFCI also provides term loan assistance for undertaking expansion of capacity beyond

10000 TCD. The debt-equity ratio is normally up to 65:35. The equity part of 35% of the

project is to be met by the society by way of additional share capital from members or out

of its surplus funds. The IFCIs assistance is provided through the State Govt. as well as

directly to the mill societies subject to fulfilment of eligibility criteria for direct funding.

Eligibility Criteria for Assisting Modernisation cum Expansion Projects

Adequate cane potential


Capable of raising own share of project cost

C. Term loan assistance for establishment of sugar by-product units.

With the shifting of profit centre of the sugar industry towards effective utilisation of bye-

products of sugar industry, IFCI has been providing term loan assistance for setting up of

projects based on bye-products' utilisation such as distillery/ethanol production, co-

generation of power, alcohol based chemical plants etc. The debt equity ratio is 65:35. The

equity is to be met by the society and/or State Govt. However, the State Govt. can avail

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investment loan assistance up to 26% of the project cost from IFCI for equity participation.

Soft loan from Sugar Development Fund is also available towards ethanol production &

bagasse based projects.

Eligibility Criteria for Assisting Sugar By Product Units

Adequate cane potential


Capable of raising own share of project cost

D. Term loan assistance towards margin money requirements.

Corporation is also implementing a scheme to provide term loan towards margin

money requirements of cooperative sugar factories for raising working capital from

banks. Assistance is sanctioned as loan to the State Govts. for passing on the same to

beneficiary cooperative sugar mills in the form of share capital/interest free long term

loan/loan as stipulated by IFCI. Quantum of short/medium term loan assistance will

be on case to case basis.

E. Working capital requirements

IFCI has introduced a scheme to provide short/medium term loan towards meeting

part of working capital requirements of cooperative sugar factories. The assistance

can be provided directly to the good working cooperative sugar mills or through the

State Govt... The assistance can also be extended through the State Apex Coop. Banks

providing working capital assistance to the sugar mill(s) directly/through DCCB.

Eligibility Criteria for Loan for Meeting Working Capital Requirements

Should have a minimum turnover of Rs.5.00 crores

Should have earned cash profit during past 3 years

Should have positive networth

Should not be a defaulter to any financial institution

Impact of IFCIs assistance in the sector

The role played by IFCI in promoting and financing cooperative sugar mills has given

a real boost to sugar industry. Consequently, the share of cooperatives in the national

production of sugar has risen to about 37% during 2004-05 seasons as against 0.5% in

the 1950-51 seasons.

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Increase in number of installed sugar mills from 84 in 1973-74 to 311 as on

31.03.2006.

Increase in share of cooperatives in sugar production from 15.54 lakh tons in 73-74

to 46.53 lakh tons in 2004 The share of cooperatives in National sugar production

during the season 1998-99 to 2002-03 ranged between 51% & 58%. However, during

2004-05, it dropped to about 36.7% due to natural calamities.

Improvement in the socio-economic standards of farmers.

Value addition and remunerative price to sugarcane growers.

REGISTRATION OF MANUFACTURERS / SUPPLIERS OF SUGAR MILL

MACHINERY TO SUGAR COOPERATIVES

In order to formulate more precise, comprehensive & upto date guidelines to advise the State

Level Advisory Committees regarding selection of machinery manufacturers/suppliers,

standardization of tendering and negotiation procedure and civil works, the Union Ministry of

Agriculture, Department of Agriculture & Cooperation constituted a National Level Standing

Committee(NLSC), vide O.M. dated 13.8.1986. The Committee is headed by Joint Secretary

(Sugar) in the Ministry of Consumer Affairs, Food and Public Distribution, Govt. of India

with representatives from National Federation of Cooperative Sugar Factories, New Delhi;

Directorate of Sugar, Govt. of India; National Sugar Institute, Kanpur; Director General of

Technical Development and Chief Director (Sugar), NCDC as member-secretary. The terms

of reference of the said Committee are as under:

To evolve guidelines regarding selection of machinery manufacturers/ suppliers,

standardization of tendering and negotiating procedures and standardization of civil

works taking into account the local conditions

To prepare a penal of machinery suppliers for turnkey projects; and supply of

equipment.

To review the said penal from time to time.

To advise on matters relating to guidelines to the State Level Advisory Committee

and

To review the experience of the State Level Advisory Committee.

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Subsequently, the Department of Agriculture & Cooperation, vide letter dated

10.6.1988, constituted a Sub-Committee of the National Level Standing

Committee to register manufacturer/suppliers of critical equipments. The

following 8 equipments have been categorized as critical:

Mills

Transmission gears for mills.

Boilers

Turbo-alternators

Clarifiers

Vacuum filters Centrifugal machines

Pressure feeders

Criteria for Registration of Manufacturers/ Suppliers

For Complete Plants on Turnkey basis.

For enlisting the suppliers of complete sugar plants on turn key basis, the following

points are taken into account:

The firm should be registered for manufacture/supply of at least one critical

equipment preferably mills, boilers or centrifugal machines.

Workshop facilities available with the applicant.

Technical collaboration available, in case of critical items.

Tie up with the suppliers of bought out items.

Testing facilities available with the suppliers.

Views of users about the life and performance of the equipment supplied by the

applicant. Quality control facilities available in the workshop of the applicant.

Technical experts employed by the firm.

Financial position of the applicant firm.

For Critical Equipments

For individual equipment, the suppliers should have either collaboration with some

reputed Indian/Foreign manufacturers or else the equipment already supplied by the

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firm should have given satisfactory performance or alternatively the firm should

satisfy the Committee about their technical and financial competence to manufacture

the equipment of suitable design, quality and performance standard.

Firms which intend to undertake only trading activity and do not have any programme

of creation of manufacturing facilities of their own will not be encouraged. The

firms having manufacturing facilities or intending to establish the same in near future

shall only be considered.

In case of those firms which have not entered into technical collaboration with some

reputed manufacturer in the concerned field and supplied the critical equipment of

their own design, registration shall not be given based on the performance certificatesmade available by the firm from the concerned sugar factories.

FUTURE OF SDF

Sugar industry has always been a strategic industry for India not only because of its economic

contribution but also because of its Political Economic value. Sugarcane growers have a large

and powerful lobby which can influence political circa of India. A large number of labour

working in sugarcane industry and unions are unignorable political agents. Specially because

most of sugar mills are in state of Uttar Pradesh and Maharashtra Helping sugarcane industry

to develop is a more of a political decision than economical. Also, these mills are owned by

either very influential people or by co-operatives.

It makes SDF business a great opportunity as a corporate. As government will be giving full

support for this financing even in case of defaults.

Following news clip talks a lot about SDF, its Future, scope and importance in political

economy.

THE poor response from the sugar industry to the Sugar Development Fund (SDF) for the

modernisation or expansion of plants has disappointed the Union Government. Addressing a

national level sugar technologists' convention here on Saturday, Dr Akhilesh Prasad Singh,

Minister of State for Agriculture and Consumer Affairs, said there were "very few

applications" seeking SDF loans.

The convention was organised by the Sugar Technologists' Association of India (STAI),

Deccan Sugar Technologists' Association of India (DSTA) and South Indian Sugarcane and

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Sugar Technologists' Association of India (SISSTA). The SDF also offered capital assistance

up to 50 per cent for research and development and technology up gradation. Besides

reducing the interest rates by two percentage points, the Government enhanced the capacity

cap to 10,000 tonnes crushed a day (TCD) from the earlier cut-off mark of 5,000 TCD.

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