Jyoti P. Gupta

Development and project financing of private power projects in developing countries: a case study of India

Abstract The power sector development is crucial to sustain the faster economic growth of the Asian region. This article analyses the critical issues involved in the development and project financing of the Independent Power Projects in India. The issues examined are related to policy, power purchase, risk factors, financing, fuel supply and transportation and key success factors. This study presents a brief profile of the power sector in India and a case study of the Dabhol power project, the first IPP being developed by foreign investor, Enron Development Corporation (EDC). The conclusions have been drawn in the end of this article.

Debt and Entrenchment: Evidence from Thailand and Indonesia

This paper examines the relation between debt and corporate governance in emerging market economies. We use firm-level panel data of listed companies from Thailand and Indonesia to analyze the firms corporate financing behaviors in connection with its corporate governance arrangements. Our results show that the debt structure is linked to the corporate governance. We find that weaker corporate governance firms, in particular measured by the entrenchment effects, tend to have a higher debt level. The evidence is relatively stronger during the crisis period. Our results also shed light on the importance of the country-specific institutional settings that would affect the empirical results.

Privatization through International Project Financing: The Case of Oil & Gas Industry in India

It was a dry chilly evening of February 15th 1993 in New Delhi. Mr. Ian Scott, sitting in the cozy environs of his suite in Le Meridien hotel, was sipping Indian tea, which he relished during tense moments. As Treasurer and Chief Financial Officer of Tevron Inc., a US based MNC in oil & gas sector, he was the sole architect of making investment decision on behalf of his company in the oil and gas sector in India. He was pondering over the discussions he had with the officials of the Ministry of Petroleum and Natural Gas, Government of India and Oil and Natural Gas Commission (ONGC), a public sector undertaking in the upstream side of Oil and Gas sector in India. He lit his pipe, walked up to the window and took birds view of the surroundings. At dusk, the upright stone structure of India Gate, a warrior’s memorial inspired him of the strong will power of the Indian people. The view of the majestic president house overlooking North and South Block and the parliament house, the seat of power, reminded him of the unflinching democratic tradition of Indian politics. He was convinced that the Indian government and the people were committed to economic liberalization which started in 1991 but unfolding of events in the coming years were crucial to entry decision of multinational corporations.

Do Financial Indicators Drive Market Value of Firms in the Transition Economies? The Russian Case

This article studies the factors which influence market valuation of Russian listed firms. Several financial metrics and corporate governance indicators are analysed. Emphasis is given to multicollinearity and cause-and-effect relationships between independent variables. Main results show that there is no significant correlation between the fundamental financial indicators and the Tobin’s Q. However, state ownership, concentration of capital and size are negatively associated with the firm valuation. The evidence suggests that the costs of government ownership outweigh its benefits. JEL classification: G15, G14, C22, F23

Family Business Groups and Organizational Structure: A Study of Bank Pyramidal Ownership in Thailand

This paper investigates how banks and finance companies operate in a family business group. Using uniquely detailed ownership data from Thailand, we find that the controlling families extensively use pyramids to control banks and finance companies and assign different lending strategies across pyramidal tiers. Lower-tier banks tend to extend loans more aggressively and perform more poorly, while upper tier banks carry out more profitable investments. After the crisis hit, upper-tier banks survived and almost all lower-tier banks went bankrupt. Our results suggest that the multilayer organizational structure of bank ownership can affect a bank´s lending behavior and its resistance to economic shocks.

Feature Cluster on the 34th meeting of the Euro Working Group on Financial Modelling, May 12-14, 2004, Paris

A transparent, fixed reference pattern is mounted on one side of a rigid, transparent sheet placed in front of a television monitor screen to enable an operator to more easily align an internally generated monitor display pattern with the fixed pattern during a calibration procedure. The side of the transparent sheet adjacent the monitor screen is covered with a semi-reflective material to reflect the reference pattern back through the sheet to the viewer so that the viewer, by causing the reflected pattern to align with the actual reference pattern, can ensure that his viewing position is exactly perpendicular to the sheet and the surface of the screen, thereby eliminating parallax problems. The monitor is then calibrated to make the generated pattern conform to the reference pattern.

Pertinence of real options approach to the valuation of internet companies

The valuation of a company is difficult, even for companies which evolve in a well-known, mature industry. The problem is far more complex, when the firm is a new born start-up company, where the traditional methods based on future free cash flows are difficult to apply, given the difficulties of estimating the future cash flows. In addition, with the start up companies, we are confronted with a total lack of appropriate benchmarks. This is true for the internet companies where there is no universally acceptable method in financial theory. The problem is the valuation of uncertainty associated with the level of economic activity. Several approaches are used, including the concept of EVA (Economic Value Added) or Economic Profit, where certain modifications could be made in the evaluation of EVA. We propose in this paper the approach based on real options which are particularly suitable for valuation of uncertainty. The paper takes the case of a real internet company to illustrate the approach, and highlights the difficulties which are encountered. The paper is divided in six sections; the second section after the initial introduction discusses the traditional methods of valuation of companies. The methods discussed include: approaches based on benchmarking, the present value of Economic Value Added (EVA), and the discounted value of the future free cash Flows. The limits of these methods have also been discussed. The second chapter describes briefly the theory of Real options, and how it can be used to value companies. The stress is on the problems related to valuing uncertainty. The key issue in the valuing of internet or new economy companies is the uncertainty of the future cash flows that these companies are likely to generate, as the economic and technological environment in which these firms operate are subject to rapid changes which are difficult to predict. The third section highlights the issues related to the identification of the embedded real options in the firm’s business plan. We underline the importance for the analyst to understand the sector in which the firm operates and also the likely changes that could take place in the technological options of the firm. In the fourth section the real options approach is used to value two internet companies. The different parameters that need to be estimated for using the real options method are indicated. We also discussed how we identify the embedded options. In the last section we discuss the difficulties that are likely to be encountered and also the limits from a theoretical point of view of the real options method.

Mergers and Acquisitions in the European Banking Sector: The Case of BNP and Paribas

The financial sector is undergoing rapid restructuring through mergers and acquisitions operations at the global level. The European banks are following the global trend. The paper analyses the takeover battle between three French banks; the BNP, Societe Generale and Paribas. The purpose of the analysis is to understand the logic behind this operation within the context of the financial theory. The paper includes the profiles of the three banks involved in the operations and the chronology of the events leading to the final outcome and critically analyses the proposed synergies. The importance of the method of payment and its impact on the operation is also discussed. The conclusions are drawn on the real motivations behind these operations.

Dynamics of Bond Returns in the Emerging Markets: A Study of the Thai Bond Market

The distributional properties of securities prices, and rate of returns have important implications for financial modeling. Mean and variance are the key variables in the valuation models. Considerable amount of work has been done to identify the distribution of securities price changes and the rates of return as characterized by volatile-variance and stationary period. The general conclusion of these studies is that the speculative price changes and return series are nonlinear and intertemporal dependence in nature (Bollerslev, 1987). This conclusion is based a phenomenon that was been observed by Mandelbrot (1963), large changes of returns and variance of returns tend to be followed by other large changes in the same direction either upward or downward movements. Moreover, the absence of serial correlation in the time series of the rate of returns, does not necessary means statistical independence. However this phenomenon has been studied in the past only for stocks and foreign exchange rates only and to our knowledge not for the corporate bonds.

Warrants Pricing in a Thin Market: Case of Thailand

The objective of this paper is to analyse the price behaviour of equity-linked warrants in a thin market, where the warrants are traded on the Stock Exchange, but the trading volume is low and the market operators have a limited experience of trading in these instruments. The paper includes a study of the theoretical and market prices and is based on the analysis of four warrants traded on the Security Exchange of Thailand. An attempt has also been made to explain the price differences.