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Financial Management and Analysis of Projects : 7. Knowledge Management : 7.12. Model Operating Covenants
7.12.2. Self-Financing Ratio (see 3.6.2.3)
7.12.2.1. The following is an outline for a
Self-Financing Ratio covenant for use in a loan agreement. It is
intended as a guide only. It is the responsibility of the OGC to
determine, in consultation with the mission leader and financial
analyst, the precise wording for inclusion in the legal agreements.
In cases of borrowers conducting multiple operations, the text of
the covenant should define which operations are to be subject to
performance measurement. As an example, in an electric power project
to be carried out by a borrower that operated electric power, water
supply, and telecommunications services, the covenant normally would
be drafted to apply only to the electric power operations.
Section _____.
-
For the purposes of this Loan Agreement, all financial calculations,
ratios, and financial covenants shall be applied in respect of
the Borrower's Operations only.
-
Except as ADB shall otherwise agree, the Borrower shall produce,
for each of its fiscal years after its fiscal year ending on _________,
cash from internal sources equivalent to not less than ___ % of
the annual average of the Borrower's capital expenditures incurred,
or expected to be incurred, for
Remainder of Paragraph (b): Option 1:
that year, the previous fiscal year and the next ______ following
fiscal years.
Remainder of Paragraph (b): Option 2:
that year and the next ______ following fiscal years.
-
Before (date/month) in each of its fiscal years, the Borrower
shall, on the basis of forecasts prepared by the Borrower and
satisfactory to ADB, review whether it would meet the requirements
set forth in paragraph (a) in respect of such year and the next
following fiscal year and shall furnish to ADB a copy of such
review, upon its completion.
Paragraph
(d): Option 1: Where the borrower or government has discretion to
adjust tariffs/rates:
-
If any such review shows that the Borrower would not meet the
requirements set forth in paragraph (b) for the Borrower's fiscal
years covered by such review, the Borrower shall promptly take
all necessary measures (including without limitation, adjustments
of the structure or levels of its rates (prices)) in order to
meet such requirements.
Paragraph
(d): Option 2: Where there is an independent regulator in place
(or where it is anticipated that an independent regulator may be
established during the project implementation period):
-
If any such review shows that the Borrower would not meet the
requirements set forth in paragraph (b) for the Borrower's fiscal
years covered by such review, the Borrower shall promptly take
all necessary measures (including without limitation, filing applications
with the [name of regulator] seeking a tariff/rate increase) to
meet such requirements.
-
For the purposes of this Section:
-
The term "cash from internal sources" means the
difference between:
-
the sum of cash flows from all sources related to operations,
plus cash generated from consumer deposits and consumer
advances of any kind, sale of assets, cash yield of interest
on investments, and net non-operating income; and
-
the sum of all expenses related to operations, including
administration, adequate maintenance and taxes and payments
in lieu of taxes (excluding provision for depreciation
and other non-cash operating charges), debt service requirements,
all cash dividends paid and other cash distributions of
surplus, increase in working capital other than cash and
other cash outflows other than capital expenditures.
-
The term "net non-operating income" means the difference
between:
-
revenues from all sources other than those related to
operations, after making adequate provisions for uncollectible
debts; and
-
expenses, including taxes and payments in lieu of taxes,
incurred in the generation of revenues in (a) above.
-
The term "working capital other than cash" means
the difference between current assets excluding cash and current
liabilities at the end of each fiscal year.
-
The term "current assets excluding cash" means all
assets other than cash which could in the ordinary course
of business be converted into cash within twelve months, including
accounts receivable, marketable securities, inventories and
prepaid expenses properly chargeable to operating expenses
within the next fiscal year.
-
The term "current liabilities" means all liabilities
which will become due and payable or could under circumstances
then existing be called for payment within twelve months,
including accounts payable, customer advances, debt service
requirements taxes and payments in lieu of taxes, and dividends.
-
The term "debt service requirements" means the aggregate
amount of repayments (including sinking fund payments if any)
of, and interest and other charges on, debt, excluding interest
charged to construction and financed from loans.
-
The term "capital expenditures" means all expenditures
incurred on account of fixed assets, including interest charged
to construction, related to operations.
-
The terms "operations" or operating" refer
to the [identify relevant part of the operations] operations
of the Borrower.
-
Whenever for the purposes of this Section it shall be necessary
to value, in terms, of the currency of the (Borrower/Guarantor),
debt payable in another currency, such valuation shall be
made on the basis of the prevailing lawful rate of exchange
at which such other currency is, at the time of such valuation,
obtainable for the purposes of servicing such debt, or, in
the absence of such rate, on the basis of a rate of exchange
acceptable to ADB.
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7.12.3. General Price Level |
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