Investment Projects Financing

Requirements to the business plan

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).