For the possible financing of an investment project to be considered by JSC Development Bank of the Republic of Belarus the applicant is to present a business plan of the investment project complying to the requirements of the Rules for elaboration of business plans for investment projects approved by the Resolution of the Ministry of Economy of the Republic of Belarus No158 dd 31.08.2005. For investment projects providing for investments into infrastructure (public utilities, social, ecological, transport infrastructure) and not related to profit (income) earning (non- profit investment project) it is acceptable upon initiator’s (regulatory body’s) justification to submit instead of the business plan the feasibility study of investment project elaborated in compliance with industry’s peculiarities and (or) international standards or approved justification of investments. When loans are granted for purchase of goods to be leased out (for leasing) the prospective estimate of cash flows movement is to be submitted.
The business plan is to be drawn in form of spread sheets reflected in Attachment 4 of the Rules for elaboration of business plans for investment projects irrespective of the project cost and amount of state support rendered. The investment offer, investment project summary and calculation of state support return are not drawn.
Subject to peculiarities of various types of business and specific current (operational) investment and financial activities of an enterprise and (or) project separate spread sheets of the Rules for elaboration of business plans for investment projects can be amended or supplemented with lines ( columns) if necessary and the parameters descriptions can be specified. Besides for a business plan it is obligatory to contain monthly calendar schedule of project implementation specifying the time of putting the object into operation, monthly repayment schedule of loan granted by JSC Development Bank of the Republic of Belarus. In case the project is financed through loans from other banks, investors, state support the information on taking respective decisions and contracts conclusion for funds granting, volume of funds utilized for the moment of business plan elaboration is to be submitted.
Submitted business plan of an investment project should allow the Development Bank to conduct comprehensive and fundamental analysis in the following areas:
- analysis of the project implementation strategy, its technical and technological feasibility, credibility of financial and economic estimates and received final values;
- analysis of markets for products (works, services) under the project, their competitiveness, sales strategy;
- analysis of efficiency and financial feasibility of the project; currency-regaining capacity;
- analysis of project risks.
When analyzing the project implementation strategy JSC Development Bank of the Republic of Belarus studies the following issues:
- The project objectives and targets (developing the new types of products, increasing the production volumes, improving the quality and competitive position of the products, decreasing the cost of production, etc.), if they comply with the programs approved by the President of the Republic of Belarus and (or) the government of the Republic of Belarus;
- Economic and social significance , availability of design-engineering documents, enterprise’s expertise in producing of similar products; location of project implementation subject to geographical position of available infrastructure;
- The state of existing production capacities and justification of the necessity in additional production capacities;
- Elaboration of technical and technological project’s aspects, compliance of production plan and technical and administrative support as specified in the business plan to the parameters of equipment to be purchased and solutions set in design estimate documents;
- Justification of the choice of equipment suppliers, technologies, sub-contractors (documents on the results of tenders on equipment delivery, etc.) and the planned investment amount under the project;
- Justification of the requested loan amount on the basis of contracts, agreements, design estimate documents, etc.;
- Accuracy of financial and economic calculations, their compliance to statutory regulations.
When analyzing markets for products (works, services) under the project JSC Development Bank of the Republic of Belarus assesses the market potential, prospects for development, production and consumption balances, major competitors, prices and quality competitiveness, distribution channels and other issues.
The respective sectors of investment projects business plans can contain a number of spread sheets: for analysis of external environment at macro level, review and tendencies for the industry development (including analysis of possibilities and threats), alternative scripts of markets changes, products competitiveness and marketing analysis (PEST-analysis, SWOT analysis, Porter five forces analysis and other methods). JSC Development Bank of the Republic of Belarus appreciates if a separate document is submitted – marketing due diligence, comprising system research of measures of trade, pricing and communication policies, goods promotion system aimed at coordinating of production with market conditions and providing for stable sales of products.
The economic efficiency of an investment project is analyzed in line with the following parameters:
- Simple project payback period;
- Dynamic project payback period;
- Internal rate of return
- Added value per each project worker.
The criterion for the assessment of investment project payback period is the average weighted normative period of fixed assets lifetime to be implemented under the project as well as period of time from initial investing into the project until putting the facility into operation. At that in case the dynamic payback period is longer than the specified period the project is deemed ineffective.
The criterion for assessment of internal rate of return is the discounting rate stipulated in the investment project business plan. In case if the value of discounting rate is higher than internal rate of return the investment project is deemed ineffective. At that if a long-term loan is the prevailing project financing source (takes 60% and more in the structure of investment project financing sources) then to admit the investment project effective the internal rate of return should exceed the long-term loan interest rate.
Added value per each project worker is an indirect parameter describing the project efficiency. The added value per each project worker is assessed as per annual value of this parameter determined when the fixed assets implemented under the project are utilized with maximum load in comparison to threshold values of annual added value calculated per each worker of average number of workers of major business activities stipulated by legislation of the Republic of Belarus, but not less than the amount equivalent to USD 16.6 thousand in case there is no threshold value stipulated by legislation of the Republic of Belarus.
The financial feasibility of investment project is analyzed on the basis of sufficiency of own resources, borrowings and raised funds for project financing according to the schedule as well as on the basis of possible repayment of raised long-term loans, other liabilities within the specified maturity. At that each fund raising source is to be justified by the investment project business plan. Simultaneously the cumulative cash balance in the spread sheet “Calculation of money funds flow across the entity” of the investment project business plan is to be positive for each period (year) of investment project realization. The debt coverage ratio is to exceed 1,0 for each period (year) of investment project realization unless the investment project business plan justifies the possibility of long-term loans repayment and other liabilities on account of sources other than net income.
Currency-regaining capacity of investment projects is defined on the basis of the spread sheet “Calculation of cash flow for export and import operations (currency-regaining capacity of the project)” of the business plan. The investment project is deemed currency regaining as soon as the cash flow balance in hard currency from current (operational) and investment activities becomes positive, and the currency-regaining period should not exceed the accepted time horizon of the investment project business plan. At that the values of cash flow balance in hard currency from export-import operations on an accrual basis in the entity taking the project into account as a rule are to be positive during each period (year) of project implementation which would evidence that sufficient volumes of foreign currency earnings remain available to the borrower after the foreign currency obligatory sales to fulfill the obligations to JSC Development Bank of the Republic of Belarus.
When analyzing the main types of risks which may occur when the project is being implemented JSC Development Bank of the Republic of Belarus assesses:
- Organizational risks (possibility to complete the main stages of project implementation within specified terms, availability of professional managing staff);
- Production risks (possibility to guarantee the continuity of production process, producing the planned volumes of goods and of required quality)
- Technological risks (degree of technology assimilation, reliability and reparability of equipment, availability of spare parts, support equipment, instruments, participation of external specialists in installation and training);
- Financial risks (assessment of the current financial status of the entity implementing the project, possible failure to fulfil the financial obligations by the project participants, consequences of possible insolvency of other project participants);
- Economic risks (assessment of the risk of decrease in demand for the products and possibility to diversify the sales markets, project immunity to rising of prices and tariffs to physical resources, deterioration of taxation, possibility of increase of construction and installation and equipment costs, occurrence of neglected expenses).