Project Decision Factor

o Total business area of the project: 3,529 m 2

o Investment rate for 1m of construction floor: 551 USD/m 2 ~ 9,807,000 VND/m 2

o Investment rate for 1m of business floor (office, commercial, residential): ~ 10,000,000 VND/m 2

CBTĐ conducts comparative analysis of the above contents with other units:

o According to the research of HO Transaction Center, the investment rate of the above project is at the average level of the projects being implemented:

 Linh Dam project (investor is HUD General): investment rate ~ 10,000,000 VND/m2 ( calculated 1 USD = 20,890 VND)

 Van Quan project (investor: Total HUD): investment rate ~ 9,900,000 VND/m2

With the above comparison results, CBTĐ concludes that the above investment rate is completely reasonable.

The bank conducts an assessment of the project's progress, thereby determining the project's capital needs:

Table 2.8. Project capital structure

Capital structure

Proportion	Value
Enterprise equity	30%	15,640,545,242
Bank loan	70%	36,494,605,565
Total	100%	52,135,150,807

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 Bank loan capital of 36.5 billion VND. With the feasibility and attractiveness of the project, the ability to mobilize loans from credit institutions is guaranteed.

 Own capital: total owned capital of the Company participating in this project is 15 billion VND:

 Charter capital of the Company on business registration up to the present time

~ 71 billion VND.

This calculation of capital needs serves as the basis for disbursement, calculation of interest during construction and determination of the repayment period of the borrowing enterprise.

Project investment capital. Based on the approved total investment capital, the CBTĐ will re-examine each type of capital source participating in project financing, evaluate the ability of each type of capital source to participate, and from the results of the analysis of the investor's financial situation, evaluate the self-owned capital for investment as guaranteed.

c. Appraisal of project revenue and costs

To assess the project's revenue and costs, the Bank conducts an assessment of the following contents:

 Appraisal of project inputs and costs.

Based on the project profile and technical characteristics of the technological line, CBTĐ assesses the demand for input materials to serve annual production, estimates fluctuations in purchase and selling prices in the coming time, the demand for importing input materials, estimates exchange rates in case of import, etc. From there, CBTĐ proceeds to determine the unit cost of the product and the total direct production cost for the project.

 Output market, product consumption capacity of the project.

The market for consuming the project's output products and services is a very important factor that determines the success or failure of the project. Therefore, the CBTĐ needs to carefully and accurately consider and evaluate this aspect, such as: assessing the market - the strengths and weaknesses of the product on the market; the ability to consume the project's output products and services; the challenges in competition of the project's output products;... From there, the CBTĐ proposes a product consumption plan for calculation, such as: Capacity mobilization level compared to design capacity; expected annual revenue,... In addition, the CBTĐ needs to consider current tax regimes and preferential documents for projects to determine the project owner's responsibility to the Bank, thereby determining the project's after-tax profit (LNST) in the project investor's debt repayment source to the Bank.

Based on the above grounds, CBTĐ will estimate and establish tables.

Calculate the financial efficiency of the project, the expected annual cash flow from the project, calculate the typical financial indicators as a basis for evaluating the efficiency and ability to repay the loan of the investor to the Bank.

Case study:

For the investment project of high quality steel production of Truong Giang Joint Stock Company.

 Appraisal of project inputs and costs.

Based on the loan project profile, the following cost items are presented:

Table 2.9. Project cost items

Unit: million VND

STT

Category	Value	Tax VAT	Total value
A	Fixed capital	285,496	11,315	296,811
1	Machinery and equipment	202,487	10,124	212,611
2	Construction and installation	23,821	1,191	25,012
3	Other costs	4,188		4,188
4	Land cost	40,000		40,000
5	Preventive	15,000		15,000
	Total investment	175.103	11,315	296,811

During the investment implementation and survey of investment items and machinery and equipment as stated in the project based on technical and technological characteristics, CBTĐ assesses the need for input costs to serve annual production, estimates fluctuations in purchase and selling prices in the coming time, estimates exchange rates in case of import, etc. From there, CBTĐ proceeds to determine the total direct costs for the project as determined by Truong Giang Joint Stock Company to be reasonable.

 Output market, product consumption capacity of the project. In the project profile, present the expected revenue:

Table 2.10. Revenue forecast

Product

Year 1

Year 2

Year 3

Year 4

Year 5

Products (tons)

100,000

160,000

250,000

350,000

Selling price (million VND)

10.9

Revenue (million VND)

1,090,000

1,744,000

2,725,000

3,815,000

The market for the project's output products and services is a very important factor that determines the success or failure of the project. Therefore, CBTĐ has carefully and accurately considered and evaluated this aspect as follows:

+ Market assessment: with product quality and prestige, the company will occupy a relatively large market share according to plan, in addition, the company also builds long-term partnerships with distributors. However, in the current market, the company is also under increasing competitive pressure.

+ Ability to consume the company's output products and services: Owning a registered brand, production process according to ISO standards, competitive price policy and direct distribution channel through agents nationwide, so the company's ability to consume products is relatively favorable.

+ Besides opportunities and advantages, the company also has challenges such as increasing competition from companies in the same industry, the emergence of new technology...

From the CBTĐ analysis, it is concluded that the company's revenue forecast is appropriate.

d. Appraisal of financial efficiency assessment criteria of the project

Based on all the above calculations, CBTĐ calculates the project's profitability ratios (such as NPV, IRR, ROA, ROE, etc.) and debt repayment ability groups (annual debt repayment source; loan repayment period; DSCR) of the project. In addition, depending on the characteristics and requirements of each specific project, CBTĐ needs to calculate other indicators such as: Foreign currency regeneration ability; job creation ability; project's technological innovation ability; human resource training; etc. However, the above indicators are only accurate when CBTĐ has the correct input factors. In addition, the project's operating time is usually medium and long term, so there will be many factors affecting the project's revenue, especially risks such as: Market risk, income risk, payment risk, supply risk, environmental and social risk, inflation risk, etc. Therefore, in the process of analyzing these indicators, CBTD needs to analyze the sensitivity of the indicators NPV, IRR, DSRC, etc. accurately and reasonably, and can predict when the assumptions change, thereby ensuring that the Bank avoids direct impacts when these risks occur.

Case study:

For the investment project of high quality steel production of Truong Giang Joint Stock Company.

Based on all the above calculations, CBTĐ recalculated the project's profitability ratios and found that the data that CBTĐ calculated was based on the data provided by Truong Giang Company's loan application:

Table 2.11. Project decision coefficients

NPV

199,435	Million Dong
IRR	26%	%
Payback period (years)	8	year

However, the above indicators are only accurate when CBTĐ has the correct input factors. In addition, the project's operating time is usually medium and long term, so there will be many factors affecting the project's revenue, especially risks such as: Market risk, income risk, payment risk, supply risk, environmental and social risk, inflation risk, etc. Therefore, in the process of analyzing these indicators, CBTĐ needs to analyze the sensitivity of the indicators NPV, IRR, DSRC, etc. accurately and reasonably, and can predict when the assumptions change, thereby ensuring that the Bank avoids direct impacts when these risks occur. But in this project, CBTĐ has not yet performed such an analysis.

e. Determine the debt repayment capacity balance sheet of the business borrowing investment capital

In this content, CBTĐ determines the source of debt repayment and the repayment period of the borrower based on the parameters analyzed above. This is extremely important because it directly affects the Bank's ability to operate in the future.

 Borrowers' sources of debt repayment are basically mobilized from the following main sources:

- Sources from the project: Retained profit after tax (EPT); Basic depreciation (BA). This is the main source of debt repayment for borrowing enterprises and in many cases, this is the only source of debt repayment. BA is calculated based on the depreciation plan of the enterprise, while retained EAT is usually calculated as 50 - 70% of the project's EAT.

- Other legal sources outside the project: from the accumulated sources of the enterprise or the Corporation. This is considered a secondary source of debt repayment for the project, however in some cases it is considered the main source of debt repayment, especially when the project is at risk. Therefore, the CBTĐ must carefully and accurately calculate this source and must regularly monitor the implementation status of the project as well as the production and business process of the enterprise to ensure safety for the Bank.

 Determine the repayment period of the borrowing enterprise: The Bank is the one who directly lends capital to the enterprise, so the most important thing for the Bank is the time to recover the loan capital. When calculating the repayment period, the CBTĐ needs to consider the loan period, construction period, principal repayment period, grace period; especially the construction period to have a reasonable debt collection plan. At the same time, depending on the revenue characteristics of each project, the Bank determines the principal and interest payment for each period appropriately, meeting the needs and wishes of the borrowing enterprise in its investment.

Case study :

For Tuyen Quang Gold, Silver and Gemstone Company:

Expected debt collection plan:

- Quarterly principal collection, starting from 2014.

- Debt collection sources: From office rental activities and the company's business activities.

Table 2.12. Balance of debt repayment sources:

Unit: million VND

Disbursement

1 (2014)	2	3	4	5
Opening balance	-	30,000	22,500	12,500	2,500
Interest payable		3,600	2,700		300
Principal payable		7,500	10,000	10,000	2,500

Total capital payable

-	11,100	12,700	11,500	2,800
Closing balance	30,000	22,500	12,500	2,500	0

After reviewing the debt collection source and calculating the debt repayment period of Tuyen Quang Gold, Silver, and Gemstone Company, CBTD concluded that the project of Tuyen Quang Gold, Silver, and Gemstone Company is feasible.

f. Check the conditions to ensure loan safety

Banks need to consider the conditions for ensuring the safety of loans of businesses borrowing investment capital to prevent risks to their loan sources:

- Enterprises must clearly indicate the debt repayment sources that can be mobilized from production and business activities within and outside the investment project to ensure the ability to repay the Bank on time.

- Require a third party guarantee if the Bank deems it necessary. The guarantor for a business loan must sign a guarantee contract committing to repay the debt on behalf of the business in case the project owner fails to fully or improperly perform the obligations in the credit contract signed with the Bank.

- Enterprises must open and maintain a deposit account at the Bank, ensuring a minimum balance in the account equal to one repayment period before each repayment period.

- The enterprise commits to transfer all project revenue into a deposit account opened at the Bank to ensure debt repayment and interest payment according to the repayment schedule from the time the project begins production and business operations.

Based on the appraisal results according to the above contents, CBTĐ must prepare an Appraisal Report in the form of a written document, specifically stating the results of the appraisal process, evaluating the investment project applying for a loan of the customer as well as recommendations for the customer's requests.

Case study :

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