Project Finance & Working Capital Advisory: Where It Goes Wrong
The failures on Project Finance & Working Capital Advisory repeat, which means they are avoidable if you know what to watch. The questions below are the ones raised most often in practice; the full scope of the service is on the Project Finance & Working Capital Advisory page.
What is DSCR and why does it matter so much to lenders?
Debt Service Coverage Ratio (DSCR) measures a project's or company's ability to service its debt obligations — broadly, cash available for debt servicing divided by the debt obligations (principal plus interest) due in that period. Lenders use DSCR, both on an average basis over the loan tenor and on a minimum (worst-year) basis, as one of the primary tests of whether the projected cash flows can realistically support the proposed repayment schedule. A project with thin or volatile DSCR in early years is a common trigger for a longer moratorium, a lower loan quantum, or additional security requirements.
In practice: We build DSCR sensitivity into every financial model we prepare — testing what happens if revenue is 10-15% below projection or costs run 10% over. A model that only shows the base case invites exactly the kind of credit committee questioning that delays sanction.
What is a Techno-Economic Viability (TEV) study and when is it required?
A TEV study is an independent technical and financial appraisal of a project, commissioned by the lending bank (at the borrower's cost) and conducted by an empanelled TEV consultant, typically for larger project loan exposures. It examines technical feasibility (technology, capacity, location, utilities), market and demand assumptions, project cost reasonableness, and financial viability including DSCR and break-even analysis, independently of the figures the borrower has submitted. Whether a TEV study is triggered depends on the lender's internal policy and the loan quantum — it is common for larger manufacturing and infrastructure exposures.
In practice: A well-prepared DPR and financial model make the TEV process faster and smoother because the consultant's independent numbers tend to align with what was already submitted. A DPR with unrealistic assumptions gets exposed at the TEV stage, which is a worse outcome than catching it earlier.
What is an External Commercial Borrowing (ECB) and when does it make sense?
ECB is foreign currency debt raised by an eligible Indian entity from a recognised overseas lender, governed by the RBI's ECB framework under FEMA, which prescribes eligible borrowers, recognised lenders, permitted end-uses, minimum average maturity, and an all-in-cost ceiling. ECB can make sense where the effective cost of foreign currency debt (after considering hedging costs) is meaningfully lower than domestic rupee debt, or where a foreign parent or group entity is a natural lender. It carries currency risk if left unhedged, and strict end-use restrictions that must be adhered to.
In practice: We model the ECB option only alongside a realistic hedging cost assumption — an unhedged ECB that looks cheaper on paper can become considerably more expensive than rupee debt if the currency moves against the borrower over the loan tenor.
What happens if a project runs over budget or behind schedule during implementation?
Cost overruns and time overruns are common on real-world projects and are not automatically a default event, provided they are communicated to the lender proactively and a plan is presented for funding the additional cost — whether through additional promoter contribution, a supplementary term loan, or cost-cutting measures elsewhere in the project. What creates real problems is when overruns are discovered by the lender independently, through delayed disbursement requests or missed milestones, rather than disclosed by the borrower.
In practice: We track actual project cost and timeline against the DPR from the first disbursement and flag emerging variances to the client well before they become a lender-facing issue. Getting ahead of a cost overrun conversation with the bank produces a far better outcome than the bank raising it first.
Can PNPC help if we already have a loan and want to switch to a different bank for better terms?
Yes — refinancing an existing facility with a different lender for a lower interest rate, better covenant terms, or a higher limit is a common engagement. It requires a comparative cost-of-funds analysis, a fresh proposal to the new lender (including updated financials and, for term loans, an updated project/business assessment), a no-objection or consent for charge transfer from the existing lender, and careful sequencing so the business does not face a funding gap during the transition.
In practice: Prepayment penalties, charge release timelines with the existing lender, and any cross-default clauses across other group facilities all need to be checked before committing to a refinancing move — a lower headline rate can be offset by transition costs if not planned carefully.
What is consortium financing and when is it needed?
Consortium financing is where multiple banks jointly fund a large credit exposure under a Common Loan Agreement, sharing security on a pari-passu (equal ranking) basis, typically led by a designated lead bank that coordinates appraisal and administration. It becomes relevant when the exposure size exceeds what a single bank is comfortable underwriting alone, which is common for larger infrastructure and manufacturing projects. Multiple banking, by contrast, is where different banks provide separate facilities to the same borrower without formal inter-lender coordination — a looser and generally less preferred structure from a lender's risk perspective.
In practice: Consortium documentation — the Common Loan Agreement, inter-creditor agreement, and pari-passu charge arrangements — needs careful legal and financial review, since obligations to one lender in the consortium can have implications across the entire facility if not properly structured.
Where this sits in the wider engagement
Project Finance & Working Capital Advisory rarely arrives on its own. The statutory basis and the current requirements are set out on the Project Finance & Working Capital Advisory service page, and the related services are grouped under Corporate Finance.
What PNPC does
PNPC Global has practised since 1986 across India and the UAE. On Project Finance & Working Capital Advisory we take the work end to end — reviewing the facts, preparing and filing what is required, and dealing with the authority through to closure.