A banking consortium is considering a 10-year term loan for a 'Waste-to-Energy' project classified under Social Infrastructure. The Total Project Cost is ₹500 crore, with a Debt-to-Equity ratio of 70:30. The loan carries an interest rate of 9% per annum. In the first year of operations, the project's Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) is projected at ₹80 crore. The depreciation for the year is ₹25 crore, and the tax rate is zero (due to incentives). The principal repayment scheduled for the first year is ₹35 crore. Calculate the Debt Service Coverage Ratio (DSCR) for the first year and determine if it meets the typical bank covenant of 1.25. Note: Debt = ₹350 crore; First Year Interest = 9% of 350 = ₹31.5 crore; Debt Service = Principal Repayment + Interest = 35 + 31.5 = ₹66.5 crore. DSCR = EBITDA / Debt Service.

Question

Accepted Answer

DSCR is 1.20; The project fails to meet the covenant.

Answer

DSCR is 1.45; The project comfortably meets the covenant.

Answer

DSCR is 1.28; The project meets the covenant.

Answer

DSCR is 1.18; The project fails to meet the covenant.

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