Special Purpose Vehicle

Special Purpose Vehicle

Contents

•Concept of SPV

•Objective of SPV

•Financing an SPV

•Governing Body

•Powers and Functions

•Employment in SPV

•Shares in a Project

•Accounting for SPV

Legal entity created to fulfill narrow, specific or temporary objectives.

SPVs are used by companies to isolate the firm from financial risk.

A company will transfer assets to the SPV for management or use the SPV to finance a large project thereby achieving a narrow set of goals without putting the entire firm at risk.

SPVs are also commonly used in complex financings to separate different layers of equity infusion.

Concept of Special Purpose Vehicle

Objective of SPV Securitization: of loans (or other receivables).

Risk sharing: Legally isolate a high risk project/asset from the parent company and to allow other investors to take a share of the risk.

Finance: Multi-tiered SPEs allow multiple tiers of investment and debt.

Asset transfer: SPV can be sold as a self-contained package, rather than attempting to assign over numerous permits.

Generation of competition

Financial engineering: SPVs are used in financial engineering schemes which have the main goal of avoidance of tax or the manipulation of financial statements.

Regulatory reasons

Property investing

It is the SPV that signs contract with government and with subcontractors to build the facility and then maintain it

It makes its obligations secure even if the parent company goes bankrupt.

Can claims the legal rights of ownership of the assets transferred from the loan originator

Financing SPV Long-term debt raised from open market Equity Debt raised from the market through suitable instruments created for the

purpose. Debt of maturity of 10 years and beyond. Debt from bilateral or multilateral institutions such as the World Bank and Asian

Development Bank. Foreign currency debt, including through external commercial borrowings raised

with prior approval of the Government. The guarantee fee payable by the SPV : 0.25% per annum on outstanding

balances. Terms for guarantee reviewed after 5 years Funds of shorter duration than ten years may be raised only on account of

asset-liability management consideration.

Commercially viable projects.Project shall be implemented by:

Public Sector Company;Private Sector Company selected

under PPP initiativeA Private Sector Company

Finance Eligibility

Process of Finance Mobilization

Governing Body

The Governing Body will consist of minimum number of members required to form/register a society i.e. seven members. President Vice-President Secretary Treasurer Member Member Member

General Body will consist of all the members of the society.

Executive Committee members will consist of President Vice-President Secretary Treasurer

Governing Body will decide the liability and fine to be imposed on the members.

The Governing Body will have discretionary power to Accept or decline the resignation of any members.

The Governing Body will have power to decide the expulsion of any member of the trust after giving him required notice for the same.

Governing body of Society

Governing Body of Company

Constitution of Board of Directors

Chairman,

Vice- Chairman/MD,

Company Secretary

Directors

Governing Body of the Trust

President

Secretary

Cashier

Rest of the members will be ordinary members.

Governing Body

Board of Directors

10 members

Two Directors on behalf of State Government.

The government will be able to nominate a Third Director in the BoD, if it increases its share to 26 per cent.

The chairman of the board will be a Government nominee and each director will have eligibility for one vote.

The General Body meetings to be held once in 45 days.

Quorum: One third of the total members eligible to vote

Expansion of Governing Body done by President

Governing Body

Powers and Functions

Power & Function of the President. The President shall preside over all the meetings of the trust, He will be head of the trust

Power & Function of Vice-President. In absence of the President the Vice-President will utilize all the power of the President.

Powers & Functions of Secretary. Conduct the correspondence of all trust all trustees or organisation for development of type of

industry/project). Conduct meetings of executive committee and general body. Record the proceedings of meeting and report to President.

Powers & Functions of Treasurer. Collect the donations, grants from government or any other institution Collect subscriptions Present the yearly statement of income and expenditure in the meeting of the Executive

Committee of the trust. He has the power to deposit the collection on behalf of the trust

Employment in SPV

Post Number

Managing Director 1

Engineers 4

Project Manager 1

Account Assistant 1

Account Office Assistant 1

Computer Operator 1

Attendant 1

Shares in a Project

• The State government will have a 16 percent of total share in the project out of total.

• The remaining shares will belong to the joint venture be distributed amongst the other groups involved.

• The state government has the increasable shares upto 26 percent after five years on the price of "call shares" which will be decided by an valuer appointed individual on mutual approval.

• The independent third-party owner (or owners) investment is substantive (generally meaning at least 3 percent of the SPE’s total debt and equity or total assets).

Accounting for SPV

The 3% rule : The sponsor of a SPV does not have to consolidate the assets and liabilities of the SPV as long as equity interest of a third-party owner was at least 3% of the SPV’s total capitalization.

Identification of variable interest entities (VIE)

Determine when a business enterprise should include the assets, liabilities, non controlling interests, and results of activities of a VIE in its consolidated financial statements