Case Study 3
Solar EPC Company looking for long term funding for BOT Project.
Executed Successfully in September 2024
Company Background:
Our client is a leading Solar EPC Contractor, having executed multiple contracts for A Listed companies. The company is 8 years old, MSME registered, with a 100cr+ turnover based out of Bangalore. The company has now ventured into BOT projects, where they acquire the land on lease, invest in the erection of the project, enter into PPAs for sale of electricity and transfer the project after a pre-defined timeline.
Requirement:
BOT projects require higher working capital funding compared to traditional EPC contracts. The current project required a funding of 12cr, out of which 6cr was upfront and 3cr in the next 2 quarters to make the plant operational. The revenues received from the plant would accrue from the 7th month and would continue for 25 years or till the project is transferred.
Since the land was on lease, it could not be mortgaged and since the plant had to be eventually transferred, creating a charge on the asset was a challenge as ownership of the same was temporary. After looking for all alternatives, the only options left with the customer were to either finance the entire project themselves, or get an investor who would finance the entire CAPEX but would take 80% of the profits.
Capstone’s Solution:
We understood the clients requirement and realized that the project could not be hypothecated, but if financed correctly would generate very good free cash flows for the company. Since the PPA would be with an A listed company, selling the project to an investor once operational would also generate very good returns.
We found a way under MSME, to finance 75% of the project cost, requiring the company to put in only 25% or 3cr as margin. This too, without creating a hypothecation on the asset or land. The funding was given for 4 years, giving the company enough time to decide whether they wish to continue holding the asset or sell it to an investor and cash out the profits.
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A 9 cr loan was given without creating a hypothecation on the assets being financed.
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The tenure was given matching the inflows from the sale of electricity, thus requiring no further cash outflows from the customer
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Future cash flows were considered to make the company eligible for the borrowing
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The process was time bound, with end to end execution done in 45 days including disbursement.
