Case: Nghe an Tate and Lyle Sugar Company

Infrastructure and Project Finance

CASE: NGHE AN TATE AND LYLE SUGAR COMPANY

12/30/2012

1

Is the mill an attractive investment?

Yes, the mill is an attractive investment, because all 5 porters’ forces are week. We will understand this by analysis of porters 5 forces.

• Bargaining power of customer : since Vietnam is sugar deficient country, it relies on imports hence bargaining power of customer is less

•

•

Bargaining power of supplier: there are no major larger scale sugar mills in north Vietnam hence bargaining power of supplier is less.

Threat of new entrant: it’s a large capital intensive industry hence threat of new entrants is moderate.

•

•

Threat of substitute products: normally there are few substitutes for sugar like Jaggery which also has same raw material.

Intensity of competition: Intensity of competition is less.

12/30/2012

2

What are the returns?

The project has 2 types of return:

Financial/commercial returns to financiers or financial rate of return, FRR

o As per the workings in exhibit 8, the project has NPV of 284,904 USD(in thousands) o Project has become profitable from 3rd year onwards i.e. year 2001 o Project becoming debt free from year 2008 onwards o Project is giving positive real free cash flow from second year onwards i.e. 2000

Social returns or economic rate of return, ERR

o o o o Benefits to employees and other labor Benefits to Customers Benefits to Suppliers i.e. to cane farmers, truck haulers Benefits to Government by way of taxes and larger social benefits

12/30/2012

3

What are the major risks?

The project has following major risks:

• Agriculture risk: Risk of farmers not supplying cane to the sugar factory • Infrastructure risk: Whether government would build new roads and bridges in the region needed for the transportation • Transportation risk: Whether there would be enough truckers available for the transportation • Risk of falling Sugar prices • Asian crisis in late...