KnightFrank: Dehradhun Cricket Stadium report by Velocitta India

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium Prepared on behalf of: Rajiv Gandhi International Cricket Stadium and Sports Complex Society FINAL REPORT | FEBRUARY 2014

Table of Contents 1.

Executive Summary

1.1

Project Background

1.2

Methodology

1.3

Recommendations

1.4

Recommended Action Steps

‘As-Is’ status

2.1

Project Background

2.2

Stadium Plan

2.3

Capital Expenditure

Scope of the Engagement

3.1

Developing a Project Plan

3.2

Ascertaining the Financial Viability

3.3

Finalization of Project Structure and Financing plan

3.4

Identiﬁcation of Risks and Mitigation Strategy

3.5

Preparation of Detailed Business Plan

3.6

Assistance in Project Marketing and search of Investment Partner

Benchmarking Studies

4.1

National Benchmarks

4.2

International Benchmarks

4.3

Key Lessons Drawn

Project Objectives and Methodology

5.1

Project Objectives

5.2

Methodology

Capital Expenditure

6.1

Introduction

6.2

Segregation of Capital Expenditure

6.3

Cash Outﬂow Schedule

Revenues

7.1

Potential Sources of Revenues

7.2

Classiﬁcation of Revenues

7.3

Estimation of Potential Sources of Revenues

10.

11.

12.

13.

Operational Expenditure

8.1

Composition of Stadium Operational Expenditure

8.2

Estimation of Stadium Operational Expenditure

Extrinsic sources of funding

9.1

Potential Sources of External Funding

9.2

State Grants

9.3

Cross Subsidization

9.4

Corporate Grants

9.5

BCCI Grants

Business Models

10.1

Potential Business Models

10.2

Guiding Principles for Business Model

Funding Strategy

11.1

Phase I - Funding Strategy

11.2

Phase II - Funding Strategy

11.3

Implementation Schedule

11.4

Consolidated Financial Strategy

Recommendations

12.1

Introduction

12.2

Methodology

12.3

Un-Bundling and Bundling Strategy

12.4

Recommended Action Steps

Action Plan

13.1

Bundle 1 - Land Parcel for Hospitality Development at the Stadium

Bundle 2 - Capital Expenditure for Funding of

13.2

Core Stadium Component - Phase I 13.3

Bundle 3 - Capital Expenditure for Funding the Clubhouse

and other Enhancements - Phase II, and running the Operations and Maintenance of the Stadium 14.

Annexure 1 - About Us

15.

Annexure 2 - Competitive Facility Benchmarking

16.

Annexure 3 - Financials

Executive Summary

1. Executive Summary

This is the ‘Executive Summary’ of the report ‘Project Financing and Implementation Strategy Dehradun Cricket Stadium’. The executive summary intends to provide in brief the contents of the report, specifying the objectives of the study, the methodology followed, the outputs, and ﬁnally the recommendations and action plan.

1.1 Project Background The Directorate of Sports, Government of Uttarakhand intends to develop an international cricket stadium with a sports complex in Dehradun, in order to improve the available sports infrastructure in the city and to promote ancillary developments. About the Stadium Plan The stadium is planned to be developed as a state-of-art, modern international standard Cricket Stadium at Raipur, Dehradun. The following are the guiding principles for station designing:  To create a Sports, Entertainment and Tourist destination for the state and region, to serve the community at large  To provide an “Iconic” stadium

facility that reﬂects the growth of Sports in Uttarakhand and is a showcase for the sports and the state nationally and internationally.  To provide a facility that can be utilized all year for a number of events, in order to maximize opportunity for revenue generation and sustainability.  To provide a highly cost effective, safe and low maintenance facility.  To provide a facility that will allow the State of Uttarakhand to successfully host international sports events The stadium is located 8 km. from Dehradun city and 30 km. from the Jolly Grant airport. Current Status The state of Uttarakhand has formed a society named “Rajiv Gandhi International Cricket Stadium and

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

Sport Complex Society (RGICS)” to implement the project. RGICS has engaged M/s Collage Design Pvt. Ltd. as the Architect for carrying out Architectural Design, Master Planning & Project Management Services for the said works. As a part of the project development endeavor, RGICS has decided to undertake development of the cricket stadium on an EPC basis. ShapoorjiPallonji&Co. has been selected as the EPC Contractor for the project through a competitive bidding process. As a part of its obligations, the society has to now make payments to the selected contractor over the period of next two years for construction of the cricket stadium. The key challenge before the society is to:  Prepare a detailed funding strategy for timely arrangement of funds in order to ensure smooth construction of the cricket stadium  A robust operational plan for regular revenues that can be utilized to meet operational expenses for world class maintenance of the cricket stadium  Project structure to promote long term sustainability of the project To ascertain the modes of financing the project capital expenditure and operational expenditure, RGICS through M/s Collage Design Pvt. Ltd. floated another tender to appoint a business plan advisor. Consequently, in November 2013, M/s Knight Frank (India) Pvt. Ltd. was appointed as the business plan advisor for the project. Knight Frank’s role on the project is to devise a comprehensive business plan with intent to provide a watertight solution towards project financing thereby helping the project achieve financial closure.

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

Capital Expenditure schedule as provided by the EPC contractor Detailed capital expenditure for the project has been shared by the EPC contractor, i.e. ShapoorjiPallonji&Co. The EPC contractor has provided the detailed break-up of the capital expenditure as per buildings & facilities, side development works, electro-magnetic works, interior and other special works. Below are the key highlights for the estimated capital expenditure for the project.  Total Capital Expenditure for the entire facility is `237 crores.  Majority of the capital expenditure, around 48% is on account of buildings and facilities, i.e. construction of pavilion, stands, and ancillary structures.  Next big component of expenditure is electro-mechanical work, i.e. 38% of the capital expenditure is on account of Electro-Mechanical works. The expenditure is mainly driven by airconditioning, sports lighting, low voltage works, and electrical works.  Other expenditure is on account of site development works, interior works, and special works.

Objectives of the Study The key objectives of the study can be summarized as below:  Funding of Capital Expenditure: Determination of cash outflows towards capital expenditure and identifying and securing the sources of funding for the capital expenditure.  Operation and Maintenance of the facility: Stadium development is not just about finding the rights options for financing capital expenditure. Operations & Maintenance (O&M) is an equally significant cost that is incurred on a recurring basis. Hence, the O&M strategy of the proposed facility should be developed in a manner to promote efficiency in operations and maintenance, and generate adequate annual revenues to meet out the expenses for operations and maintenance.  Long term sustainability of the facility: The project shall be structured in a manner so as to promote long term sustainability of the project and create an overall eco-system around itself.

Quarterly Cash Outﬂows as per EPC contractor’s projections Figures in ` Crores

50 45

40 40 30

33 29

25 21

18 10 0 Mar’14

Jun’14

Sep’14

Dec’14

Mar’15

Jun’15

Sep’15

Dec’15

Source: EPC contractor

Figures in ` Crores

Particulars

171

Capital Expenditure

Less: Upfront Sources of Revenues -10 Naming Rights -10 Corporate Boxes 151 Balance Funding Less: State Funding Direct Funding SIDCUL chief patron Tax plough back Balance Funding

-25 -25 -15 86

crores. Of this, the private player can use up to `20 crores after payment of taxes towards funding the capital expenditure. The remaining funding shall be arranged in a debt equity ratio of 2:1. The table below describes the funding schedule for the capital expenditure.

Snapshot of the potential expenditure over a period of next 30 years Figures in ` Crores

139 Figures in ` Crores

Particulars -15 71

Less: Cross Subsidization Balance Funding

attract a private developer to run this facility.

Stadium Operations

Capital Expenditure

Clubhouse

Source: Knight Frank Analysis

The team ascertained that the total corporate grants required for the proposed facility is `75 crores.

Less: Upfront proceeds from Sale of club membership Balance Funding

-20 46

Debt Equity Balance Funding

-31 -15 0

Source: Knight Frank Analysis

Gymnasium

Taxes

Interest Total

360 Source: Knight Frank Analysis

Bundle 3 Objective The objective of bundle 3 is to fund the capital expenditure for clubhouse and stadium enhancements, and to meet operational expenditure of the stadium. The cash outﬂow pattern for the capital expenditure is provided as below:

The private player shall generate revenues from the following recurring sources of revenues. The table below describes the potential revenues over a period of next 30 years.

Snapshot of the potential revenue over a period of next 30 years Figures in ` Crores

Quarterly Cash Outﬂows 66

266

Advertising

Clubhouse

Matches

1.4 Recommended Action Steps Action strategy is prepared keeping in mind the timing of cash outﬂows and availability of potential sources of funding. The chart below describes the phase-wise cash outﬂow pattern of the entire capital expenditure for the stadium.

Figures in ` Crores

Quarterly Cash Outﬂows Figures in ` Crores

20 18

15 15

110

Banqueting

Licenses

Gymnasium

Q1’14

Q2’14

10 10

Q3’14

5 Q4’14

Total

0 Q1’15

Q2’15

Q3’15

Q4’15

Q1’15

Strategy The private player is required to arrange funding for `66 crores. Private Player can generate upfront proceeds from selling of club membership to the tune of `27

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

Source: Knight Frank Analysis

*Quarters refer to calendar year quarters Source: Knight Frank Analysis

543

Q2’15

The private player shall incur the following expenditure over a period of next 30 years. Based on the above calculations, the private developer shall be able to generate equity IRR of 15.1%. An equity return of 15.1% is decent to

Q3’15

Q4’15

9 0

*Quarters refer to calendar year quarters Source: EPC Contractor

The strategy has been prepared keeping in view the construction schedule to start from quarter ending Mar-2014. ONGC Grants: The agreed ONGC grants of `50.0 crores shall be channelized towards project funding as per the agreed arrangement, i.e. `25.0 crores in the quarter ending March 2014, `8.0 crores in quarter ending June 2014, `10.0 crores in quarter ending December 2014, `4.0 crores in quarter ending September 2015, and the balance `3.0 crores in quarter ending December 2015. Chief Patron SIDCUL: The agreement with SIDCUL for chief patron rights shall be concluded till quarter ending June 2014, so as to receive `25.0 crores as a right for Chief Patron of the proposed cricket stadium. Land Monetization: Knight Frank team shall prepare the transaction documents to run the entire bid process management for the land parcel with a target to identify potential private partner within quarter ending September 2014.

discussions with corporate houses for selling naming rights and corporate boxes. The state government can organize discussions with the identiﬁed corporate houses as presented in this report. We suggest a state push be required for selling these rights to corporates. Private Partner: Knight Frank team shall prepare the transaction documents and shall run the entire bid process management for the cricket stadium development and identify potential private partner within quarter ending Dec 2014. State Government Grants: State government to channelize the Phase 2 capital expenditure tax plough back of `5.0 crores to RGICS by quarter ending June 2015.

The chart below describes the quarterly cash ﬂow schedule for funding of capital expenditure.

Quarterly cash ﬂow schedule for funding of capital expenditure Figures in ` Crores

45 12

7 35

State Government Grants: State government to channelize the following to RGICS by quarter ending March 2014.  Budgetary Grants: `25.0 crores  Phase 1 capital expenditure tax plough back of `10.0 crores  Proceeds from land monetization estimated at `15.0 crores

33 29

30 25 20

27 23 25

13 17

Additional ONGC/ Corporate Grants: The additional ONGC/ Corporate grants of `25.0 crores shall be channelized towards project funding by quarter ending Dec 2014. Naming Rights/ Corporate boxes: State government/ RGICS shall start

25 25

6 4

0 Mar’14

Jun’14

Private Sector Funding Intrinsic sources of revenues Land Parcel Taxes plough back

Sep’14

Dec’14

Mar’15

Government grants Naming rights by SIDCUL Other ONGC/ Corporate grants Grants received ONGC

Jun’15

Sep’15

3 Dec’15

Source: Knight Frank Analysis

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

‘As-Is’ Status

2. ‘As-Is’ Status 2.1 Project Background The Directorate of Sports, Government of Uttarakhand intends to develop an international cricket stadium with a sports complex in Dehradun, in order to improve the available sports infrastructure in the city and to promote ancillary developments. Consequently, it has formed a society named “Rajiv Gandhi International Cricket Stadium and Sport Complex Society (RGICS)” to implement the project. RGICS has been assigned the responsibility of developing 25,000 seat capacity with provisions of future expansion of 5000 Seats International Cricket Stadium and Sports Complex with related facilities. The project is planned to be developed in an area of approximately 25 Acres at Raipur, Dehradun in the state of Uttarakhand. RGICS has engaged M/s Collage Design Pvt. Ltd. as the Architect for carrying out Architectural Design, Master Planning & Project Management Services for the said works. The total plot area of the project is 89,030.16 m2 (or 22 Acres), and builtup area of the is 41,480.296 m2. The number of ﬂoor will be (G+4). Green belt development area will be 20,106.86 m2 (22.58% of the plot area). Total population of the project will be 26,239 persons. The total water requirement of the project will be 499 KLD (Fresh water requirement = 426 KLD) during match day and 65 KLD (Fresh water requirement = 45 KLD) during non- match day. The source of the water supply during operation phase will be Bore Wells. It is expected that the project will

generate approx 400 KLD of waste water. The waste water will be treated in the STP of MBBR Technology (500 KLD capacity) will be provided within the project site generating 320 KLD of recoverable water from STP which will be recycled within the project site for irrigation purpose. 20 numbers of rain water harvesting pit and 2 rain water harvesting tanks will be proposed for recharging the ground water level. The total power requirement for the project will be 1,033 KVA (during Non-match day/ Match day (day time)) and 2,172 KVA (During Match Day (Night time)) that will be supplied by the Uttarakhand Power Corporation Ltd. (UPCL). 4 DG sets will be provided for power backup of 4,000 kVA (4 X 1,000 kVA) capacity; all DG sets will be kept on standby. The parking requirement as per the State bye laws and MoEF norms is 1,258 ECS. The parking proposed in open area will be 1,622 ECS. Total solid waste generation will be 4,119 kg/day during match day and 325 kg/day during non-match day. As a part of the project development endeavor, RGICS has decided to undertake development of the cricket stadium on an EPC basis. The Society conducted a bidding process in September 2013 for the appointment of an EPC contractor. ShapoorjiPallonji&Co. has been selected as the EPC Contractor for the project through a competitive bidding process. As a part of its obligations, the society has to now make payments to the selected contractor over the period of next two years for construction of the cricket stadium.

The key challenge before the society is to:  Prepare a detailed funding strategy for timely arrangement of funds in order to ensure smooth construction of the cricket stadium.  A robust operational plan for regular revenues that can be utilized to meet operational expenses for world class maintenance of the cricket stadium.  Project structure to promote long term sustainability of the project. To ascertain the modes of financing the project capital expenditure and operational expenditure, RGICS through M/s Collage Design Pvt. Ltd. floated another tender to appoint a business plan advisor. Consequently, in November 2013, M/s Knight Frank (India) Pvt. Ltd. was appointed as the business plan advisor for the project. Knight Frank’s role on the project is to devise a comprehensive business plan with intent to provide a watertight solution towards project financing thereby helping the project achieve financial closure. This report deals with the business plan prepared by Knight Frank incorporating the funding strategy, project structuring and operations strategy, recommendations, and detailed action plan. This section provides a brief outlay of the stadium plan and design, key challenges faced by Rajiv Gandhi International Cricket Stadium and Sports Complex Society (RGICS), and capital expenditure schedule as provided by the selected EPC contractor i.e. ShapoorjiPalonji&Co.

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium



Other expenditure is on account of site development works, interior works, and special works.

2.2 Stadium Plan

2.3 Capital Expenditure

The stadium is planned to be developed as a state-of-art, modern international standard Cricket Stadium at Raipur, Dehradun. The following are the guiding principles for station designing:  To create a Sports, Entertainment and Tourist destination for the state and region, to serve the community at large  To provide an “Iconic” stadium facility that reﬂects the growth of Sports in Uttarakhand and is a showcase for the sports and the state nationally and internationally.  To provide a facility that can be utilized all year for a number of events, in order to maximize opportunity for revenue generation and sustainability.  To provide a highly cost effective, safe and low maintenance facility.  To provide a facility that will allow the State of Uttarakhand to successfully host international sports events

Detailed capital expenditure for the project has been shared by the EPC contractor, i.e. ShapoorjiPallonji&Co. The EPC contractor has provided the detailed break-up of the capital expenditure as per buildings & facilities, side development works, electro-magnetic works, interior and other special works. Below are the key highlights for the estimated capital expenditure for the project.  Total Capital Expenditure for the entire facility is `237 crores.  Majority of the capital expenditure, around 48% is on account of buildings and facilities, i.e. construction of pavilion, stands, and ancillary structures.  Next big component of expenditure is electro-magnetic work, i.e. 38% of the capital expenditure is on account of Electro-Mechanical works. The expenditure is mainly driven by air-conditioning, sports lighting, low voltage works, and electrical works.

The stadium is located 8 km from Dehradun city and 30 km from the Jolly Grant airport.

The cash outﬂow pattern for this expenditure is described as below:

The table describes the entire capital expenditure for the stadium. Below are the key observations of the capital expenditure schedule.

Key observations of the capital expenditure schedule Figures in ` Crores

Particulars

Buildings and Facilities

114

Site Development Works

Electro-Mechanical Works

Interior Works

Special works

Total

237

Source: EPC Contractor

Quarterly Cash Outﬂows as per EPC contractor’s projections Figures in ` Crores

Dehradun, Uttarakhand, India

Dehradun Site

50 45

40 40 30

33 29

Jolly Grant Aiport

25 21

The stadium is planned as a 25,000 seating capacity stadium with an option to increase the seating capacity by 5,000 seats in future. In addition, the stadium is planned to provide 20 corporate boxes, restaurants, broadcasting rooms as per ICC norms, VVIP lounge, and a club-house with an ice-rink facility.

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

0 Mar’14

Jun’14

Sep’14

Dec’14

Mar’15

Jun’15

Sep’15

Dec’15

Source: EPC Contractor

As can be observed, the planned payment outflow for capital expenditure is in between `20 to `30 crores per quarter. The planned outflows are highest for the subsequent two quarters, i.e. `40 and `45 crores. The planned cash outflows in the last three quarters follows a declining trend.

Scope of the Engagement

3. Scope of the Engagement The section provides a broad scope of the engagement of the project. The scope of the project can be summarized into the following categories:  Developing a Project Plan  Ascertaining the Financial Viability  Finalization of Project Structure and Financing Plan  Identiﬁcation of Risks and Mitigation Strategy  Preparation of Detailed Business Plan  Assistance in Project Marketing and search of Investment Partner  Details of each of the above mentioned categories are provided in the following subsections.

3.1 Developing a Project Plan Following are the key activities performed while preparing a detailed project plan.  Market analysis and assessment of demand - supply dynamics to determine potential demand drivers for the sports stadium.  Benchmarking case studies to analyze best practices for successful implementation of similar projects.  Estimation of in-stadium and outstadium revenues to ascertain potential revenues.  Assessment of real estate revenue potential as an add-on component to augment the project revenues.  Estimation of capital expenditure to build the facility and operational expenditure to run and maintain the facility.

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

3.2 Ascertaining the Financial Viability Once the project plan was finalized, the next step was to assess the financial viability of the project. The financial viability has been ascertained by carrying out the following activities:  Cash flow projections over the project life to ascertain the cash inflows and outflows from the project.  Financial and ratio analysis to determine project strengths.  Financial structuring of the project and determination of sources of finance at different intervals.  Assessing project sustainability.

3.3 Finalization of Project Structure and Financing Plan After ﬁnalization of the ﬁnancial model, the team worked towards

ﬁnalization of the project structure and ﬁnancing plan. The detailed project structure provides:  Determination of funding support from the government as central/ state viability gap funding  Other grants from state government to support funding  Grants from corporates as a part of corporate social responsibility  Cross-subsidization of the capital expenditure through support real estate development

3.4 Identification of Risks and Mitigation Strategy Once the project structure was frozen, due-diligence was carried out to identify the potential risks that may arise in the due course of project implementation, and to prepare adequate strategies to address and mitigate such risks. The task involved the following activities:  Identification of potential risks.  Quantification of identified risks

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and ascertaining the loss potential based on the realistic probabilities of occurrence of these risks. Detailed Risk mitigation strategy by avoiding, diversifying, and mitigating potential risks.

3.5 Preparation of Detailed Business Plan A detailed business plan has been ďŹ nally prepared encapsulating the quantum of investments, implementation model, risks associated, risk mitigation measures, and an exhaustive marketing strategy that needs to be adopted to develop the project. In addition, interactions were organized with the key stakeholders at each stage of preparation of the ďŹ nancial and business plan to ensure a smooth and seamless facilitation during the entire process of project implementation.

3.6 Assistance in Project Marketing and search of Investment Partner This report also gives a direction on the project marketing activities such as preparation of information memorandums and presentation of business plan to various interested parties, which shall be carried out by the team of consultants subsequently.

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

Benchmarking Studies

4. Benchmarking Studies As a ﬁrst step towards business plan preparation, the team identiﬁed a set of national and international stadia. The section details out the study of comparable facilities, and lessons drawn out of study of these facilities. The objective of this exercise was to analyze the funding and revenues strategies followed in the comparable facilities, and analyze their relevance for the proposed facilities. The comparable facilities comprises of both national and international facilities.

4.1 National Benchmarks The team has studied the following existing facilities in India  Eden Gardens; Kolkata, West Bengal  Rajiv Gandhi International Cricket Stadium; Hyderabad, Andhra Pradesh  M. Chinnaswamy Stadium; Bengaluru, Karnataka  Feroz Shah Kotla; Delhi  Maharashtra Cricket stadium; Pune/ Mumbai, Maharashtra  Sardar Patel Stadium; Ahmedabad, Gujarat  Wankhede Cricket Stadium; Mumbai, Maharashtra  Vidarbha Cricket Stadium; Nagpur, Maharashtra  Roop Singh Stadium; Gwalior, Madhya Pradesh  D.Y Patil Stadium; Mumbai, Maharashtra  ACA - VDCA Stadium; Vishakhapatnam, Andhra Pradesh  JSCA International Cricket Stadium; Ranchi, Jharkhand  Barabati Stadium; Cuttack, Orissa  Punjab Cricket Association Stadium; Ajitgarh, Punjab

In addition, the team has also analyzed the funding structure of proposed outdoor stadium at Thiruvananthapuram, Kerala. Existing Facilities The detailed analysis of each of the above mentioned facility is provided in the annexures. However, the key observations drawn out of the study are noted as below:  Majority of these facilities are public and operated by the respective regional government  D.Y. Patil Stadium is funded and managed by D.Y. Patil Sports Academy, a part of D.Y. Patil group  Most of the stadia are old, and have been constructed prior to 2005.  Only few stadia, i.e. Roop Singh Stadium, JSCA International Cricket Stadium, Vidarba, and D.Y. Patil cricket stadium were constructed post 2008.  The new stadia developments are supplemented by the support real estate that can be utilized to generate upfront/ regular

revenues for the project. This can be utilized either for funding the capital expenditure or meeting regular expenditure. Proposed Outdoor Stadium at Thiruvananthapuram, Kerala An outdoor stadium is proposed for the 35th National games to be hosted in Kerala on a 30 acre land parcel at Karyavattom, Trivandrum accessible from NH-47. The proposed development is envisioned to include a 50,000 seat cricket/football stadium, indoor sports arena, convention & exhibition center and retail cum F&B facilities. After the National games, the sports complex is expected to host international and national cricket/football games, league matches, collegiate sports events, concerts and other entertainment events. The stadium is executed on a PPP contract, wherein a private player is selected to execute the contract. The private player shall be responsible for construction of the entire facility, and will run the operations on the facility.

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

 

of commercial center to be developed along with the stadium. The proceeds from such sales were utilized towards funding of the stadium development costs. The balance was funded through equity investments. Key feature of the transaction is that the stadium appointed ‘Juventus’, which assured a regular payment to the club in return for an exclusive right to sell the stadium naming rights and part of the stadium capacity. Thus, the stadium has diversiﬁed the operational risks from the project by appointing a private partner to run the operations. Besides, this payment assures debt-servicing to the lenders.

4.3 Key Lessons Drawn Key lessons drawn out of the competitive benchmarking study are as below: Unbundling: The stadium ﬁnancing

strategy can be unbundled into three parts, i.e. capital expenditure funding for stadium, operations and maintenance of the stadium, and commercial activities at the stadium. A detailed strategy can be prepared for each of these parts to better achieve the overall objectives of stadium ﬁnancing. Funding Capital Expenditure: Government can appoint a private player to fund the capital expenditure of the stadium, and in return can give regular annuity payment to the private operator. This helps to defer the lump-sum expenditure into a series of regular expenditure as annuities on part of the government. Besides, ﬁxed annuity adds to the creditworthiness of the private player in regards to debt servicing, and thereby enhances the debt taking capacity. Running and Maintenance of Stadium Operations: Private Player can be appointed for running and maintenance of the stadium as it

brings in the relevant expertise and efficiencies in running the facility. The transaction can be structured in any of the following manner:  Selling of Operations Rights: Government will allow the private player to generate revenues out of the facility. In return, the private player may make a lump-sum payment or annual payments. In addition, this helps transferring the operation side risks to the private player.  Annual Operator Contracts: Government may appoint a private player for operations and maintenance on a fixed/ flexible fee basis. In this scenario, the government has a right over the revenues of the stadium. Commercial Activities: Commercial rights can be sold up-front and the payment can be utilized towards the funding the capital expenditure of the stadium.

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

Project Objectives and Methodology

5. Project Objectives and Methodology The section describes the objectives of the project, and the methodology adopted to achieve the objectives of the project.

5.1 Project Objectives The key objectives of the project can be summarized as below:  Funding of Capital Expenditure: Determination of cash outflows towards capital expenditure and identifying and securing the sources of funding for the capital expenditure.  Operation and Maintenance of the facility: Stadium development is not just about finding the rights options for financing capital expenditure. Operations & maintenance (O&M) is an equally significant cost that is incurred on a recurring basis. Hence, the O&M strategy of the proposed facility should be developed in a manner to promote efficiency in operations and maintenance, and generate adequate annual revenues to meet out the expenses for operations and maintenance.  Long term sustainability of the facility: The project shall be structured in a manner so as to promote long term sustainability of the project and create an overall eco-system around itself.

5.2 Methodology The methodology for the study is prepared in line with the objectives of the study. The table below summarizes the priority of and methodology for the above mentioned objectives.

Objective

Priority

Solution

Funding of Capital Expenditure: Develop a ﬁnancial strategy of a stadium in such a manner that the already decided construction schedule is not affected, and we have a fully operational stadium as per the pre-decided schedule.

Immediate

Entire capital expenditure is divided into two phases: Phase1: Essential for stadium operations Phase 2: Enhancements and modernization of the stadium A separate funding strategy is prepared for each phase.

Financing Operational Expenditure: Ensure efﬁciency in operations and maintenance of the facility.

Medium Term

Long Term Sustenance: The facility is Long term to be created and operated as a state objective of art facility. The objective is to ensure long term ﬁnancial viability and sustenance of the proposed cricket stadium.

Private sector partner to be responsible for operations and involved on a concession to be maintenance of the stadium. Key responsibilities of the private player are as below: - Operations and maintenance of the facility - Efﬁciently running the clubhouse facility in order to generate adequate returns and turn the clubhouse in a lively place Innovative activities to be promoted in the facility such as: - Inter-school Uttarakhand Cricket League - Sports academy, such as spin academy/ batting academy - Ice skating academy and games - Regular promotional events for the members - Offering club memberships to schools/ colleges and corporates for their tournaments - Tie-ups with tenants such as Indian Premier League, Celebrity Cricket League, etc.

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

In line with the objective wise solution, the step-by-step methodology adopted for the project is as follows: Segregation of Capital Expenditure: The capital expenditure is to be segregated on the basis of the nature and degree of importance of the capital expenditure items. Accordingly, the capital expenditure is to be segregated in the following two categories:  Essential capital expenditure critical to make the stadium operational. This has been classiﬁed as Phase 1 expenditure in this report.  Capital expenditure required for support/ additional facilities, upon which the operations of the facility is not contingent. This has been referred to as Phase 2

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

expenditure in the subsequent sections of this report. Revenue Estimation: The next step is to identify the potential sources of revenues from the facility, and classification of the identified revenue sources  Upfront Revenues: Identification of all possible sources of revenues that can be generated within the next two years of the operations, and therefore the proceeds can be utilized for funding capital expenditure.  Regular Revenues: Revenues that can be generated during the operations period on a regular interval. These revenues can be utilized to fund Phase 2 capital expenditure, and also to meet the operational expenditure.

Extrinsic Sources of Funding: Identification of extrinsic sources to fund the capital expenditure. These sources mainly include funds from corporate sector and state grants. Funding Plan: Preparation of separate funding plan for Phase 1 and Phase 2 capital expenditure. The plan shall specify the sources of funding to be utilized to provide for the cash outflows for capital expenditure. Financial Structure: Determining the financial structure of the project to ensure the long term sustainability of the facility. Risk and Mitigation Strategy: Identification of potential risks and strategy to mitigate the identified risks.

Capital Expenditure

6. Capital Expenditure The section analyses the capital expenditure for the proposed facility, and segmentation of the capital expenditure into Phase 1 and Phase 2 capital expenditure.

6.1 Introduction Capital expenditure for the project has been shared by the project’s EPC contractor. Below are the key highlights for the estimated capital expenditure for the project.  Total Capital Expenditure for the entire facility is `237 crores.  Majority of the capital expenditure, around 48% is on account of buildings and facilities, i.e. construction of pavilion, stands, and ancillary structures.  Next big component of expenditure is electro-magnetic work, i.e. 38% of the capital expenditure is on account of Electro-Mechanical works. The expenditure is mainly driven by air-conditioning, sports lighting, low voltage works, and electrical works.

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium



Other expenditure is on account of site development works, interior works, and special works.

The table describes the entire capital expenditure for the stadium. Below are the key categories of the capital expenditure schedule.

Key observations of the capital expenditure schedule Figures in ` Crores

Particulars

Buildings and Facilities

114

Site Development Works

Electro-Mechanical Works

Interior Works

Special works

Total

237

Source: EPC Contractor

6.2 Segregation of Capital Expenditure The entire capital expenditure is segregated into Phase 1 and Phase 2 capital expenditure. Phase I: Activities that are critical to make the core stadium operational, i.e. preparing the stadium to an extent that it can host international cricket matches. Key components of capital expenditure at this phase are as below:  Construction of pavilion and stands buildings without roofs  Site development works, excluding internal and external signage  Electro-magnetic works except DG sets, CCTV, scope board and support structures Phase II: Activities required for improving the facilities in the stadium, and enhancing the stadium to include other activities such as clubhouse, etc. Key components of capital expenditure at this phase are:

   

Rooﬁng of structures Internal and External signage DG sets, CCTV, Scope boards, and support structures Club-house

Total capital expenditure for Phase 1 is `171 crores and Phase 2 is `66 crores.

The table below describes the component-wise segregation of capital expenditure in Phase 1 and Phase 2. Particulars (in ` Cr.)

Phase 1

Phase 2

Total

Buildings and Facilities

107

Site Development Works

Electro-Mechanical Works

Interior Works

Special works

Design and Development

Total

171

237 Source: EPC Contractor

6.3 Cash Outﬂow Schedule The chart below describes the phase-wise cash outﬂow pattern of the entire capital expenditure for the stadium. Below are the key observations of the capital expenditure schedule.

Quarterly Cash Outﬂows as per EPC contractor’s projections Figures in ` Crores

50 40 40 30

33 29

10 9 0 Q1’14

Q2’14

Q3’14

*Quarters refer to calendar year quarters

 

Q4’14

Q1’15

Q2’15

Q3’15

Q4’15

Source: EPC Contractor

Phase I capital expenditure is spread over two years, i.e. quarter ending March 2014 to quarter ending December 2016. Phase 2 capital expenditure is planned to be incurred during the second year of construction, quarter ending March 2015 to quarter ending December 2016.

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

Revenues

7. Revenues The section analyses the potential sources of revenues from the proposed cricket stadium, classiﬁcation of these sources as ‘Upfront’ and ‘Regular’ sources of revenues, and estimation of potential cash inﬂows from these sources.

7.1 Potential Sources of Revenues The potential sources of revenues from the proposed facilities are as below: Naming Rights: Naming rights refer to sponsorship rights for pavilion, stands, and scoreboards. Usually, corporates purchase naming rights on a long term basis. Corporate Box Sale: Corporate boxes refer to special private seating sections within a stadium that command a substantially higher price than the regular seats. Corporates purchase long term rights for these boxes. Matches: Stadium generates rental revenues on account of rent for stadium during cricket matches. These matches may be international (ODI/ Test) or domestic matches (Ranji, Duleep, etc.).

Promotions Events/ Exhibitions: In addition to the cricket matches, the stadium can also generate revenues on account of promotional events such as music, cultural, etc. and exhibitions. Licensing of Commercial Spaces: Commercial spaces include various shops, restaurants, and other leasable spaces in the stadium facility. The stadium operator can generate lease rent from leasing these commercial spaces. Banqueting: Banqueting can be done in the garden area of the facility. The stadium operator can also generate revenues from renting this space for banqueting events. These sources of revenues are discussed in detail in the following sub-sections.

7.2 Classiﬁcation of Revenues Revenues sources are classiﬁed as upfront sources of revenues and recurring sources of revenues. Upfront Revenue: Upfront revenues are the revenues that can be

bundled, and can be generated over a period of next two years. These revenues can be used to fund capital expenditure. Potential upfront sources of revenues are listed as below:  Naming rights  Corporate box sale Recurring Revenues: Recurring revenues are annual revenues generated out of the operations of the company. These revenues can be utilized to ﬁnance the operational and maintenance expenditure. Recurring sources of revenues are classiﬁed as below:  Advertising  Clubhouse  Matches  Licensing  Banqueting  Gymnasium

7.3 Estimation of Potential Sources of Revenues I) Naming Rights Naming rights refer to sponsorship rights for pavilion, stands, and scoreboards. Usually, corporates purchase naming rights on a long term basis for an up-front payment to the stadium.

Advertising: Advertising within the facility during cricket matches/ other events. Usually, event management companies purchase advertising rights on a per match basis. Clubhouse: A clubhouse is proposed in the stadium premises. Clubhouse generates revenues in form of onetime fees and annual membership charges.

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

The chart below depicts the assumptions for number of events organized in the stadium.

Revenue assumptions are taken based on our interactions with various stadium operators for similar events. The table below describes the assumptions rental assumptions per year. Source: Knight Frank Analysis

YEAR 1

`2.50 lakhs 3

Per ODI

`1.50 lakhs

Per Test match

Per Concert/ Entertainment event

`0.50 lakhs

YEAR 2

`0.25 lakhs Per Domestic match

YEAR 3

The revenue per year is inďŹ&#x201A;ated @ 5.0% to account for price level changes.

3 YEAR 4

The following table estimates the potential revenues over a period of 30 years from stadium rental activities.

3 YEAR 5

Particulars

3 YEAR 6

Figures in ` Crores

ODI Test Match Domestic Concert Institutional

1.6 2.4 5.7 59.1 7.3

Total

76.1 Source: Knight Frank Analysis

411

YEAR 7

Per School/ College/ Association event

ODI matches Ranji/ Domestic matches Cultural events Test matches Schools/ College/ Sports Assoc. events

Source: Knight Frank Analysis

IV) Advertising Revenues Advertising revenues represents revenues generated on account of licensing of advertisement spaces in the facility. Advertising revenues may be on account of regular revenues, i.e. annual revenues from leasing of advertising space. Also, revenues can also be generated on account on event speciďŹ c advertisements. Regular Advertisements Regular advertising revenue is assumed as `24 lakhs per annum, escalated @ 5%. The assumption is

based on our interactions with various industry players and our understanding of the markets. Total revenues expected to be generated over a period of 30 years from Regular advertising is `18 crores. Event-based Advertisements The table below summarizes the advertisement revenues per match during One day International matches. Escalation rate is considered as @ 5 % p.a. Association

Match

Rights Revenue/ match

Goa Cricket Association

ODI (India -Australia) in 2010

`1.26 crores

Baroda Cricket Association

ODI (India -Australia) in 2008

`1.16 crores

Hyderabad Cricket Association

ODI 2010

`1.2 crores

Source: Knight Frank Analysis

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

Based on the above benchmarks and our understanding of the market, we have assumed event based revenues as `1 crores per ODI match and `0.5 crores per Test match. The assumption considered is an average assumption, as the event based revenues also ﬂuctuates in line with the intensity of the event. Please refer to ‘Section 7.3 (v)-Match Revenues’ for the number of matches. Total revenues from event based advertisements over a period of 30 years are estimated at `48 crores. V) Clubhouse A clubhouse is proposed in the stadium premises. Usually, clubhouse generates revenues in form of onetime fees and annual membership charges. Demand Analysis There is a strong catchment of demand for clubhouse membership within Dehradun. Based on our interactions with the club operators of Doon Club, the club has around 2,400 members at present, and a waiting list of 500 applicants. The sale price for last membership sold is `2 lakhs in 2007-2008. In order to further strengthen the demand potential for clubhouse, the team has conducted an analysis of the Demographic - Income proﬁle of Dehradun district.  Demand potential over the next two years for clubhouse activities lies within the people with income segment over `10 lakhs per year, i.e. high income segment. There are 33,100 households at present that have the potential to subscribe for the membership.  The demand in future will also be generated through middle income

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

segment, as the households from middle income segment will move upwards to the high income segment. As of now, there are 56,300 household in middle income segment.

High Income segment

Middle Income segment

Low Income segment

Annual Income over `10 lakhs

Household - 33,100 Population - 1,96,000

Annual Income over `3-`10 lakhs

Household - 56,300 Population - 3,24,800

Annual Income upto `3lakhs

Household - 95,900 Population - 4,30,100

Source: Indicus data

Benchmarking study The team further carried out a primary research to understand the market prices of membership of various other clubhouses. These clubhouses include:  Lucknow Club  Kanpur Club  Agra Club  Rajpath Club, Ahmedabad  Karnavati Club, Ahmedabad The details of the results are provided as below: Lucknow Club The club is one of the best known ‘A’ grade residential clubs, among the traditional clubs that were established by the British who brought the club culture into the country. The club is located in the greenest belt of the city, with abundance of natural beauty & wide opens areas.

The membership fee of the club is highlighted as below: Membership

Fees (`)

General Category

578,654

Dependents below 35 years

438,204

Life membership

500,000

Corporate Membership 1 person

200,000

2 person

400,000

3 person

500,000

7 person

750,000 Source: Knight Frank Analysis

Other Clubs The membership fees of various clubs are highlighted as below: Club

Fees (`)

Rajpath Club, Ahmedabad

10,00,000

Karnavati Club, Ahmedabad

13,50,000

Cownpore Club, Kanpur

20,00,000

Agra Club

10,00,000 Source: Knight Frank Analysis

Operational Expenditure

8. Operational Expenditure The section analyses the operational expenditure of the proposed cricket stadium.

8.1 Composition of Stadium Operational Expenditure Key operational expenses for a stadium can be categorized in the following heads: 



Daily Maintenance Expenditure, including security, cleaning, and maintenance of equipment such as lifts, generators, UPS, ﬁre safety, and other electrical equipment. Capital Improvements/ Maintenance Fund: The fund is created to meet the expenditure on account of wear and tear of assets, and improvement of such assets. Team Operation Expenses: Team operation expenses mainly include expenses on the technical and marketing team. Technical team includes stadium manager and other technical employees. Sales team includes sales manager and other sales employees, responsible for marketing of the stadium. Marketing and Communication Expenses: Expenditures on press, advertising, website administration, participation in sports conferences, etc. Other Operational Expenses: Other operational expenses include expenses on rentals expenditure on various furniture, stationary, insurance, etc.

8.2 Estimation of Stadium Operational Expenditure Composition of the above mentioned expenses as a percentage of total operational expenditure of a cricket stadium is explained in the table below.

The table below highlights the estimated operational expenditure over a period of 30 years.

Snapshot of the potential expenditure over a period of next 30 years Expenditure

Amount (`crores) Stadium

Estimation of Stadium Operational Expenditure Figures in %

10.2 4.7 37.4 13.4

Daily Maintenance Expenditure

52.0

Capital Improvements/ Maintenance Fund

47.9

Team Operation Expenses

18.5

Marketing and Communication Expenses

6.5

Other Operational Expenses

14.1

Total

139.0

34.3

Daily Maintenance Expenditure

Capital Improvements /Maintenance Fund

Team Operation Expenses

Marketing and Communication Expenses

Other Operational Expenses

Source: Knight Frank Analysis

The assumptions towards composition of stadium operating expenses are in line with our interactions with various stadium operators and facility maintenance ﬁrms. Also, based on these interactions, we understand that the expenses usually lie in the range of `1.5-2.0 crores. Therefore, we have conservatively assumed the annual operational expenditure as `2.0 crores, escalated @ 5.0%. Total operational expenses over a period of 30 years are estimated to be `139.0 crores.

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

Extrinsic Sources of Funding

9. Extrinsic Sources of Funding The section analyses the potential sources of funding, external to the proposed facility, and their quantiﬁcation.



9.1 Potential Sources of External Funding The potential sources of external funding for the proposed facilities are as below:  State Grants  Cross Subsidization, i.e. Land Monetization  Corporate Grants  Board of Control of Cricket in India (BCCI) Funding

9.2 State Grants State Government, being responsible to promote sports and other allied activities within the state, shall provide some grants to fund the capital expenditure for cricket stadium. State Government will have the following beneﬁts on account of a functioning cricket stadium.  Society Enrichment: The proposed facility will add to the sports infrastructure of the society, and thus results in enrichment of the society on account of better sports facility, and thereby promoting sports facility. Such a facility leads to building a 'Sports Legacy' in the city and encourage sports in the lifestyle, i.e. being players and fans.  Multiplier Effect: Besides enrichment of sports infrastructure, the stadium will further have a multiplier effect



and will promote various other economic activities in the city. Investments in Workforce: In addition to the economic investments, such facility would also invest in workforce for various skills that would enable them for future employments. Ancillary Developments: In addition, the stadium will promote various ancillary developments in the city, such as hospitality developments, retail establishments, sports tourism, etc.



provide naming rights for a stand to SIDCUL. Tax plough back: The selected contractor shall pay various state taxes on the payments received by the government for development of cricket stadium. The tax break-up as shared by the EPC contractor is provided as below:

The tax break-up shared by EPC contractor Expenditure

Amount (`crores) Stadium

Thus, the proposed stadium will result in various economic benefits to the society, and consequently, the state shall provide subsidies to finance the proposed stadium. Strategy In line with our interactions with the senior officials of the state government of Uttarakhand, we suggest that the state government shall provide the following incentives to the project in the form of Grants:  Direct Subsidy: The state government has proposed to provide a direct subsidy of `25 crores for the development of cricket stadium.  Chief Patron Rights: In addition to the direct subsidy, we suggest that a state government body shall also take the chief patron rights of the stadium for `25 crores. The state body shall get the naming rights of a stand in return. As per our discussions with the senior officials of the state government, SIDCUL has agreed to take the role of chiefpatron for a sum of `25 crores. In return, RGICS shall

Base Amount

211.9

Works and Contract Taxes (WCT)

12.7

Labor Cess

2.1

Service Tax

10.5

Total

237.2

Source: Knight Frank Analysis

Of the above mentioned taxes, WCT and Labor Cess are state level taxes. These taxes can be ploughed back plough back to ﬁnance the capital expenditure. Together, these taxes amounts to approximately `14.8 crores. The team is in discussions with the EPC contractor and other relevant authorities to understand the mechanism for tax plough back.

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

9.3 Cross Subsidization Based on our interactions with RGICS, a 2.8 acres land parcel can be carved out at a close proximity to the stadium facility. This facility can be utilized for hospitality development, and the proceeds from monetization of this land parcel can be used to cross subsidize the capital expenditure for the cricket stadium.

Key ﬁndings of the analysis are as below:  Category of Hotels: The city has unbranded 4-star and below category hotel. There are no branded upscale or mid-scale hotels available within the city. This gives us an opportunity to attract the branded players since the development of such facility further induces the hospitality

The map below shows the average room rate of different hotels in the nearby area:

Besides, various corporates book these hotels for their off-sites and parties. Also, majority of these hotels have banqueting facilities, which are used for marriage functions. Discounted Cash Flow (DCF) Valuation To arrive at the appropriate valuation for this 2.8 acre land parcel, the team used a discounted cash flow approach. The approach establishes the valuation of the underlying asset based on the market offering vis-avis Average Room Rate and occupancy. From the revenues stream over the project life cycle, the costs towards construction and hotel operations is subtracted. After discounting the future cash flows at a certain rate (the weighted average cost of capital used to finance the project), the valuation of the property is arrived. This value is essentially the value the market is willing to pay towards the land. For the purpose of our analysis, we have assumed that a 60 room business/ up-scale category branded hotel can be developed on this land parcel. The industry players typically operating in this segment include Wyndham, Marriott International, Country Inn & Suites, Radisson Blu, etc.

Market Commentary In order to analyze the value of land parcel, the team has analyzed the hospitality market of the city by surveying the available hospitality players to understand the  Average Room Rate within the city  Occupancy ratio  Categories of hotels  End-user proﬁle

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium



 

demand in the city Average Room Rate: Average room rate for a midscale category hotel ranges from `3,000-`5,000 per room night, depending on the tourist season. Occupancy Ratio: Occupancy ratio varies in the range of 60.0%. End-user Proﬁle: Typical endusers are individual tourists.

The workings for arriving at the land valuation through DCF approach is detailed below. I. Capital Expenditure and Funding Capital costs are computed based on broad brush basis estimated through our prior experience. The table below provides the estimates of the uninﬂated capital expenditure.

9.5 BCCI Grants Board of Control for Cricket in India (BCCI) is the national governing body for cricket in India, and is a member of International Cricket Council. BCCI comprises of 27 state cricket associations, and is responsible for running the domestic tournaments in the country. BCCI gives various grants to its association members for development of cricket infrastructure within the country. These grants include both annual grants and one-time grants for development of facilities. The limits of these grants are speciﬁed as below:  Annual Grants: `20 crores to associations which do not have any cricketing facility and `26 crores to associations having their own stadium.  Stadium Development and Redevelopment: `50 crores to any association for development/ redevelopment of cricketing facility. As of now, the proposed cricket stadium facility cannot avail these grants since there is no state cricket association of Uttarakhand registered with the BCCI. We understand that it would be difﬁcult to avail this grant at present as it would need formation of a cricket association and subsequently, registration of this association with BCCI.

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

In addition to the process being a time consuming process, it would also be difﬁcult to involve BCCI at such an advance stage of stadium development. It is therefore recommended that this grant shall be kept as a buffer and shall be utilized later for enhancements of stadium.

Business Models

10. Business Models The section describes the available funding options for the proposed stadium facility, evaluation parameters and selected strategies, and detailed funding strategy.

Risks

 

Design Risks

10.1 Potential Business Models Business model means role and responsibility matrix of individual parties in a project, specifying in detail the roles, responsibility, and authorities of each of the participating party. Usually, the participating entities are state and private parties. The roles, responsibilities and authorities of these parties differ on the basis of risks taken by each party. The table below describes in detail the description and implication of such risks.

Description



 

Construction Risks



 

Operation Risks

 

Revenue Risks



Implications

Designing faults during DPR stage Incorrect Assumptions Design Technology

Adversely effect on the cost structure and the ﬁnancial out-come

Delay in transfer of asset (land) Delays owing to government approvals Construction inefﬁciencies

Cost escalation and Time over-runs, and thereby affects the ﬁnancial viability of the project.

Mobilization delays in manpower/ equipment Labor management Working capital mis-management Delayed payments from municipalities for tipping fees

Operational inefﬁciencies and thereby reduction in revenues/ increase in operational expenditure

Tariff rates Inadequate waste generation

Reduction in revenues

Inappropriate ﬁnancial structuring of the project

Problems in debt servicing

Financial Risks

Business models deﬁne the quantum of these risks that each party undertakes in the project. A

B State

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

Combinations of Public Private Partnership

Private

10.2 Guiding Principles for Business Model The business models are evaluated in line with the objectives of the study and lessons learnt from competitive benchmarking. Key factors considered while evaluation of the suggested business models are analyzed as below: Funding and Operations of Hospitality Land Parcel It is suggested that the hotel be built and operated by a private player based on the following factors.  Private Player brings in the operational efficiencies in running the operations of hotel.  Funding of hotel construction will put an additional burden of `29 crores on the state, which can be easily funded by private player. Bringing in private player will have a dual impact of funding reduction for the state as the state can utilize the proceeds from private player for the funding of cricket stadium. Thereby, we can drop out the first business model, i.e. State Control and can continue with the remaining three business model. Operations of Cricket Stadium and Clubhouse It is suggested that 'private player' shall be appointed for the running and maintenance of cricket stadium and clubhouse on account of the following factors:  The private player will ensure world class maintenance of the facility in line with our objective of long term sustainenace of the stadium.  Private Player brings in operational efficiencies and expertise in running of the cricket

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium



stadium. This will help in generating additional revenues from the facility on account of innovative usage of the facility. Also, the private player owing to its efﬁciencies will result in lower operations and maintenance costs. No burden on part of the government for running and maintenance of the operations of the facility.

Thus, we can drop option two 'State as a Developer and Operator' as a potential business model. Operational Risks Post the ﬁrst two criteria, we are left with only the last two options, i.e. 'State as developer and private operator on O&M contract' and 'State as developer and private operator on operation rights'. Key differences between these two options are provided as under:  Funding of clubhouse and other enhancements  Operational risks in relation to performance of the stadium  Rights over the revenues  Obligations to meet the operational expenditure In case of 'State as developer and private operator on O&M contract', the state shall be responsible for funding of clubhouse and meeting the operational expenditure. In return, the state shall have the rights over the revenues from the stadium. For operational expertise, the state shall bring in a private player on O&M basis. Key shortcoming of this model is that the state will be required to arrange funding for phase 2 activities, i.e. around `66 crores. Also, the state will be responsible for meeting the

operational expenditure, and there will be no diversiﬁcation of operational risks. In case of 'State as developer and private operator on operation rights', private player shall be responsible for funding of clubhouse and meeting the operational expenditure, and shall have the rights over the revenues from the stadium. The key beneﬁt of this structure is that it transfers the operational risks to the private party. Therefore, the last option, 'State as developer and private operator on operation rights' is suggested as the recommended structure for the project.

Funding Strategy

11. Funding Strategy The section describes in detail the Phase 1 strategy, along with the risk return analysis of the proposed strategy.

11.1 Phase I Funding Strategy Objectives The objective of this strategy is to secure funding for Phase I capital expenditure to the tune of `171 crores.

Funding The table below highlights the sources of funding for the capital expenditure through upfront revenues, state grants, and cross subsidization. The remaining funding has to be arranged through corporate grants.

The cash outﬂow pattern for the capital expenditure is provided as below:

Quarterly Cash Outﬂows as per EPC contractor’s projections Figures in ` Crores Q1’14

funding at this stage are as below: Upfront Sources of Revenues  Naming Rights  Corporate Box Sales Extrinsic Sources of Revenues  State Funding  Cross Subsidization  Corporate Grants

Particulars

Amount (`crores)

Capital Expenditure

171

with the requirement of an additional corporate grant to the tune of `25 crores for funding the phase 1 capital expenditure. The state government is in discussion with ONGC for an additional grant of `25 crores. In case, ONGC does not accept the request for additional grants, then it is suggested to raise these grants from other corporates as mentioned in section 9.4 Corporate Grants. These funds shall be arranged mainly in form of grants. However, the society can give these companies some rights as a token of gesture, such as right to use the facility for corporate matches for a ﬁxed number of days, etc. The chart below describes the potential funding from additional sources of funding.

Quarterly Cash Outﬂows Figures in ` Crores

Q2’14

Less: Upfront Sources of Revenues Naming Rights -10 Corporate Boxes -10 Balance Funding 151

Q3’14

Q4’14

Land Monetization

State Government Grant

Q1’15

Less: State Funding Direct funding SIDCUL chief patron Tax plough back Balance Funding

Q2’15

Q3’15

-25 -25 -15 86

Tax Plough Back

Chief Patron SIDCUL

Corporate Grant

Q4’15

*Quarters refer to calendar year quarters Source: EPC Contractor

As can be analyzed, majority of the capital expenditure, i.e. `148 crores will be spent during the ﬁrst ﬁve quarters. Capital expenditure worth `23 crores will be spent during the last three quarters. Available Funding Options Sources of funding available for

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

Less: Cross Subsidization Balance Funding

-15 *Quarters refer to calendar year quarters

Source: Knight Frank Analysis

We ascertain that the total corporate grants required for the proposed facility is `75 crores. Of this `75 crores, it has been communicated by ofﬁcials of Government of Uttarakhand that ONGC has already committed for a grant of `50 crores. This leaves us

Beneﬁts of the Proposed Funding Strategy Key beneﬁts of the proposed funding strategy are highlighted as below:  Creation of an international level sports stadium - The capital expenditure is funded to the extent that the stadium can be built and be used for international level matches.

Setting up a Sports academy, such as spin academy/ batting academy by International level players. In addition to financial benefits, such academies provides various economic benefits such as  Groom young talent  Ideal for pre-season or in-season training  Adds to the reputation of the stadium  Conducting national coaching camps  Tap sports potential of the city Ice Skating Academy and Games As a part of the clubhouse, the private player will also get access to utilizing world class ice rink stadium, prepared for the 2011 South Asian Winter Games.

11.3 Implementation Schedule The chart below describes the implementation schedule for the project. Phase 1: Development of Core Stadium Facility

RGCIS

Funding through extrinsic sources of revenues

Phase 2: Expansion & Operation

Private



Offering club memberships to schools/ colleges and corporates for their tournaments. In addition to individual membership, the club can also sell membership to different educational institutes and corporates. Entering into contracts with various tournament leagues, such as Indian Premier League, Celebrity Cricket League, etc. Indian Premier League is a cricket league initiated by Board of Cricket Control in India (BCCI) for T20 cricket. Celebrity Cricket League is a T20 cricket league of ﬁlm actors from major ﬁlm industries of India.

Year 2 onwards

Part funding through proceeds from selling membership of clubhouse. Balance through debt and equity funding.



Asian Winter Games, 2011.

Year 2

Year 1



A still of ice-rink facility utilized for South

Funding through pre-selling of naming rights, corporate boxes and scoreboard rights

Operation and Maintenance of the facility

Initial funding for Phase I shall be carried out through extrinsic sources of funding, namely corporate grants, state grants, and cross subsidization. The remaining funding for Phase I shall be carried out in the second half of the Year 2 through intrinsic sources of revenues, i.e. naming rights and corporate boxes. The strategy is to ﬁrst utilize extrinsic sources of funding, and then focus on intrinsic revenue sources. The private partner shall be appointed to fund the capital expenditure for Phase II. The private player shall meet the capital expenditure partly through sale of club membership and partly through debt/equity funding. Post the funding, the private player shall carry out the operations and share revenues with RGICS.

11.4 Consolidated Financial Strategy Consolidated financial strategy is prepared keeping in mind the timing of cash outflows and availability of potential sources of funding. Cash Outflows The chart below describes the phase-wise cash outflow pattern of the entire capital expenditure for the stadium. Below are the key observations of the capital expenditure schedule. Quarterly Cash Outflows as per EPC contractor’s projections Figures in ` Crores

50 40 40 30

33 29

11 9

0 Q1’14

Q2’14

Q3’14

*Quarters refer to calendar year quarters

Q4’14

Q1’15

Q2’15

Q3’15

Q4’15 Source: EPC Contractor

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

12 Recommendations

proceeds from selling of club membership to the tune of `27 crores. Of this, the private player can use up to `20 crores after payment of taxes towards funding the capital expenditure. The remaining funding shall be arranged in a debt equity ratio of 2:1. The table below describes the funding schedule for the capital expenditure.

The private player shall incur the following expenditure over a period of next 30 years.

Snapshot of the potential expenditure over a period of next 30 years Figures in ` Crores

Capital Expenditure

Less: Upfront proceeds from Sale of club membership Balance Funding

-20

139 Stadium Operations

Figures in ` Crores Q1’14

46 -31 -15 0

Debt Equity Balance Funding

Source: Knight Frank Analysis

The private player shall generate revenues from the following regular sources of revenues as mentioned in section 7.2 Classiﬁcation of Sources of Revenues. The table below describes the potential revenues over a period of next 30 years.

Snapshot of the potential revenue over a period of next 30 years Figures in ` Crores

66 266 Advertising

Clubhouse

Matches 13 12

110

Licenses

Gymnasium

543 Source: Knight Frank Analysis

Quarterly Cash Outﬂows

94 Clubhouse

Total

Action strategy is prepared keeping in mind the timing of cash outﬂows and the availability of potential sources of funding. The chart below describes the phase-wise cash outﬂow pattern of the entire capital expenditure for the stadium.

Figures in ` Crores

Particulars

Banqueting

12.4 Recommended Action Steps

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

Q2’14

Gymnasium 23

Interest

Taxes

Total

360

Q3’14

Q4’14

Q1’15

Source: Knight Frank Analysis Q2’15

Based on the above calculations, the private developer shall be able to generate equity IRR of 15.1%. An equity return of 15.1% is decent to attract a private developer to run this facility.

Q3’15

Q4’15

9 0

*Quarters refer to calendar year quarters Source: EPC Contractor

The strategy has been prepared keeping in view the construction schedule to start from quarter ending Mar-2014. ONGC Grants: The agreed ONGC grants of `50.0 crores shall be channelized towards project funding as per the agreed arrangement, i.e. `25.0 crores in the quarter ending March 2014, `8.0 crores in quarter ending June 2014, `10.0 crores in quarter ending December 2014, `4.0 crores in quarter ending September 2015, and the balance `3.0 crores in quarter ending December 2015. Chief Patron SIDCUL: The agreement with SIDCUL for chief patron rights shall be concluded till quarter ending June 2014, so as to receive `25.0 crores as a right for Chief Patron of the proposed cricket stadium Land Monetization: Knight Frank team shall prepare the transaction documents to run the entire bid process management for the land parcel with a target to identify potential private partner within quarter ending September 2014.

Additional ONGC/ Corporate Grants: The additional ONGC/ Corporate grants of `25.0 crores shall be channelized towards project funding by quarter ending Dec 2014.

State Government Grants: State government to channelize the Phase 2 capital expenditure tax plough back of `5.0 crores to RGICS by quarter ending June 2015. The chart below describes the quarterly cash ﬂow schedule for funding of capital expenditure.

Private Partner: Knight Frank team shall prepare the transaction documents and shall run the entire bid process management for the

Quarterly cash ﬂow schedule for funding of capital expenditure Figures in ` Crores

45 12

7 35

33 29

30 25

22 27

State Government Grants: State government to channelize the following to RGICS by quarter ending March 2014  Budgetary Grants: `25.0 crores  Phase 1 capital expenditure tax plough back of `10.0 crores  Proceeds from land monetization estimated at `15.0 crores

cricket stadium development and identify potential private partner within quarter ending Dec 2014.

Naming Rights/ Corporate Boxes: State government/ RGICS shall start discussions with corporate houses for selling naming rights and corporate boxes. The state government can organize discussions with the identiﬁed corporate houses as presented in this report. We suggest a state push be required for selling these rights to corporates.

23 25

13 17

10 8

6 4

0 Mar’14

Jun’14

Private Sector Funding Intrinsic sources of revenues Land Parcel Taxes plough back

Sep’14

Dec’14

Mar’15

Government grants Naming rights by SIDCUL Other ONGC/ Corporate grants Grants received ONGC

Jun’15

Sep’15

3 Dec’15

Source: Knight Frank Analysis

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

13 Action Plan

13. Action Plan

The section deals with the action plan for each of the bundle prepared. ‘Section 12 Recommendations’ describes three bundles for the project. These bundles are provides as below:  Bundle 1: Land parcel for hospitality development at the stadium  Bundle 2: Capital expenditure for funding the core stadium component - Phase I  Bundle 3: Capital expenditure to fund the enhancements and clubhouse - Phase II and running the operations and maintenance of the stadium.

13.1 Bundle 1 - Land parcel for Hospitality Development at the Stadium Knight Frank team shall prepare the transaction documents and run the entire bid process management for

the land parcel with a target to identify potential private partner within quarter ending September 2014. The bid process management will involve the following steps:  Finalization of the risk matrix, with a bifurcation of the risks to be borne by the private developer and the Authority, and mitigation measures;  Preparation of the RFP - volume I (Instruction to Bidders), RFP volume II (Concession Agreement) and volume III (Project Information Memorandum);  Approval from the PPP cell of the State Government;  Issuance of the tender notice;  Pre-bid meeting and preparation of replies to the pre-bid queries;  Receipt and opening of the bids from bidders;  Assessment of the technical and ﬁnancial bids, preparation of the bid assessment report for the Authority;  Issuance of the LOI/ LOA to the



selected bidder; Assistance to the Authority in negotiation with the selected bidder; and Assistance to the Authority in signing of the concession agreement with selected bidder

The proposed timelines for bid process management are as follow:  Preparation of transaction documents by Knight Frank team - Mar 2014  Review of the documents by RGICS and uploading of the ﬁnal documents - Jun 2014  Pre-bid meetings and submission of tender documents by the bidders - July 2014  Evaluation of bids - Aug 2014  Negotiations with the selected bidders and signing of concession agreement - Sep 2014  Bidder to pay upfront premium Sep 2014

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

13.2 Bundle 2 - Capital Expenditure for Funding of Core Stadium Component Phase I Key action plan for this stage is required for corporate grants, naming rights, and corporate box sales. Cash inﬂows from intrinsic revenues (`20.0 crores) and additional ONGC/ Corporate grants (`25.0 crores) shall be channelized towards project funding till Dec 2014. For the purposes of the action plan, we assumed that the Corporate grants of `25.0 crores shall be generated from corporates other than ONGC. Detailed strategy for Bundle 2 is provided as below:  Knight Frank team to prepare marketing documents, such as Project Information Memorandum - Mar 2014.  Knight Frank team to identify key target corporate groups for corporate grants - Mar 2014. - The team has already identiﬁed key corporates with regional presence, as highlighted in section 9.4 corporate grants.  RGICS to arrange for a meeting with the target corporates - Jun 2014 - Usually a state push is required for corporate grants/ selling of naming rights and corporate box sales. Hence, it is suggested that the state shall request for such meetings with these corporates. Knight Frank team shall assist the members of RGICS for presentations during such meetings.

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

Finalization of contracts and signing of concession agreements with corporate players - Sep 2014.

13.3 Bundle 3 - Capital Expenditure for Funding the Clubhouse and other Enhancements - Phase II, and running the Operations and Maintenance of the Stadium Knight Frank team shall prepare the transaction documents and run the entire bid process management to identify potential private partner within quarter ending Dec 2014. The bid process management will involve the following steps:  Finalization of the risk matrix, with a bifurcation of the risks to be borne by the private developer and the Authority, and mitigation measures;  Preparation of the RFP - volume I (Instruction to Bidders), RFP volume II (Concession Agreement) and  Volume III (Project Information Memorandum);  Approval from the PPP cell of the State Government;  Issuance of the tender notice;  Pre-bid meeting and preparation of replies to the pre-bid queries;  Receipt and opening of the bids from bidders;  Assessment of the technical and ﬁnancial bids, preparation of the bid assessment report for the Authority;  Issuance of the LOI/LOA to the selected bidder;  Assistance to the Authority in negotiation with the selected



bidder; Assistance to the Authority in signing of the concession agreement with selected bidder

The proposed timelines for bid process management are as follow:  Preparation of transaction documents by Knight Frank team - Mar2014  Review of the documents by RGICS and uploading of the ﬁnal documents - Jun 2014  Pre-bid meetings and submission of tender documents by the bidders - Aug 2014  Evaluation of bids - Oct 2014  Negotiations with the selected bidders and signing of concession agreement - Oct 2014

Annexure 1About Us

14. Annexure 1-About Us Brief Global History Knight Frank is the leading independent, global real estate consultancy providing an integrated prime commercial and residential offering, operating in key hubs across the globe. Founded in 1896 and a Limited Liability Partnership (LLP) since 2003, the ﬁrm’s 63 Equity Partners promote progressive growth through a strong corporate culture, helping us to recruit and retain the best people. We promote progressive growth through a strong corporate culture, helping us to recruit and retain the best people. Advising clients ranging from individual private investors, clients and homeowners to major developers, investors, and public sector clients, we put teamwork, innovation and our passion for property at the heart of everything we do, striving to go the extra mile to exceed our clients’ expectations.

Company Proﬁle Knight Frank LLP is an integrated global infrastructure and real estate advisory ﬁrm whose mission is to create wealth for its clients, by maximizing the value of their property assets. Knight Frank (India) Ltd. is a 100% wholly owned subsidiary of Knight Frank LLP.

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

We offer clients the highest standards of infrastructure and real estate solutions with a comprehensive range of services delivered by professionally qualified staff with tremendous experience in their respective fields. The firm is one of the leading consultancy practices in India.

1570 80 17

1,620 72

4,710 53 12

4,020 99 3 20 4 4 640 23 9

Together with its US alliance partner, Newmark Grubb Knight Frank, has grown to a group over 12,500 property professionals, in more than 330 offices in 48 countries. Knight Frank (India) Pvt. Ltd.  The firm was established in 1995 in Mumbai.  Currently it operates offices in 7 cities across the country i.e. Mumbai, Pune, Delhi, Bangalore, Chennai, Hyderabad & Kolkata.  The overall employee strength of the firm stands at around 800 personnel as on date. Knight Frank India Service Lines Knight Frank India provides

integrated end to end solutions in infrastructure and real estate space ranging from strategic advisory to transactions management to project

and facility management. Listed ahead are a range of services offered under each vertical.

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

15 Annexure 2Competitive Facility Benchmarking

15. Annexure 2-Competitive Facility Benchmarking Rajiv Gandhi International Cricket Stadium (1/2) Rajiv Gandhi International Cricket Stadium, formerly known as Visaka International Cricket Stadium Ground, is the principal cricket stadium in Hyderabad and is the home ground of the Hyderabad Cricket Association (HCA). It hosts Test, ODI and IPL matches, serving as the home ground for the recently formed Sunrisers Hyderabad.

Facts & ﬁgures

Eden Gardens One of the most iconic stadiums in the world, it is the largest in India and is the third-largest in the world by seating capacity. Eden Gardens is renowned for its large and vociferous crowds. It hosts Test, One Day International and Twenty20 International matches. Facts & ﬁgures

City/ State

Kolkata/ West Bengal

Construction time

1,864 (renovated in 2011)

Capacity

66,349

Owner/ Operator

Cricket Association of Bengal

Tenant Club

Kolkata Knight Riders

Events

International Cricket Matches

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

City/ State

Hyderabad/ Andhra Pradesh

Construction time

2004

Capacity

55,000

Owner/ Operator

Hyderabad Cricket Association

Tenant Club

Sunrisers Hyderabad

Events

International Cricket Matches

M. Chinnaswamy Stadium (2/2)

Feroz Shah Kotla Established in 1883, it is the second oldest international cricket stadium still functional in India, after the Eden Gardens in Kolkata. In the 21st century, the Feroz Shah Kotla is famed for its cauldron-like atmosphere, which is supposed to be the best in the country. Facts & ﬁgures

Venue overview Multiple facilities

- Billiards Room - Tennis Courts - Squash Court - Badminton Courts - Swimming Pool - Health Club - Lifestyle Spa - Tambola - Cards - Library - 5 Banquet Halls - 2 Restaurants - 3 Lounges And Bars - Chambers The Clubhouse has 39 airconditioned rooms and eight air-conditioned Suites, all wellfurnished with attached bathrooms.

Revenue of corporate boxes (25 seats)

`690,000/ match `27,600/ person/ match (Taxes included)

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

City/ State

New Delhi/ Delhi

Construction time

1883 (renovated in 2005)

Capacity

55,000

Owner/ Operator

Delhi District Cricket Association

Tenant Club

Delhi Cricket Team/ Delhi Daredevils

Events

- International Cricket Matches - 1987 Cricket World Cup - 1996 Cricket World Cup - 2011 Cricket World Cup

Jawaharlal Nehru Stadium, Kochi The stadium has a capacity of 76,000 spectators making it the largest cricket stadium in India and second largest stadium in India after Salt Lake Stadium in Kolkata. Originally constructed as a football stadium, it has played host to a number of international cricket and football matches. The extensive grounds of the stadium serve as venue for important exhibitions, cinema events and political rallies in the city. Facts & ﬁgures

City/ State

Kochi/ Kerala

Construction time

1996

Capacity

76,000

Owner/ Operator

- India Cricket Team - Kerala Cricket team - Chirag United Club Kerala - Kerala Strikers

Tenant Club

Andhra Cricket Team

Events

- International Cricket Matches - Football Matches - Club Matches

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

Annexure 3 -Financials

16. Annexure 3-Financials 1. Project Timeline Assumptions 1.1 Project Timeline Inputs Project commencement date Construction period

#date #months

1-Dec-13 24.0

Start of operations Operation period End of operations

#date #months #date

1-Dec-15 360.0 30-Nov-45

3. Capital Cost Assumptions (UninďŹ&#x201A;ated and Unphased Capex) 3.2 Capital Costs 3.2.2 Buildings Particulars North Pavillion South Pavillion East and West Stand Service and Ancially Structures

`Cr. `Cr. `Cr. `Cr.

Phase 1

Phase 2

Total Capex `Cr.

46.9 19.5 14.9 2.1

5.4 5.4 13.8 0.0

52.3 25.0 28.7 2.1

83.4

24.6

108.0

Phase 1

Phase 2

Total Capex `Cr.

0.0 3.5 5.4 0.9 2.6 0.1 0.0 0.0 0.0 0.0

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.5 6.0 2.2

0.0 3.5 5.4 0.9 2.6 0.1 0.0 0.5 6.0 2.2

12.5

8.7

21.2

3.2.3 Site Development Works Particulars Site Grading works (Cutting, Filling works) Main approach road to Sports complex from Thane Road Internal roads & drainage Fire, Raw, Treated water Underground Tank & Pump room Boundary wall, Entry Gate complex & exit Gates Entry, Exit Gates Utility Trenches Landscaping works Hardcaping works Internal & External signages

Project Financing and Implementation Strategy Report for Dehradun Cricket Stadium

`Cr. `Cr. `Cr. `Cr. `Cr. `Cr. `Cr. `Cr. `Cr. `Cr.

Authors of the Report

Saurabh Mehrotra Director - Advisory Services saurabh.mehrotra@in.knightfrank.com +91 22 6745 0101

Sarad Kundu Head - Advisory Services (North) sarad.kundu@in.knightfrank.com

Disclaimer

Anjul Mehrotra Lead Consultant - Infrastructure Advisory anjul.mehrotra@in.knightfrank.com

The statements, information and opinions expressed or provided in this publication are intended only as a guide to some of the important considerations that relate to project investment. Although we believe they are correct and not misleading, with every effort having been made to ensure that they are free from error, they should not be taken to represent, nor are they intended to represent, investment advice or specific proposals, which must always be reviewed in isolation due to the degree of uniqueness that will attach thereto. Neither Knight Frank nor any persons involved in the preparations of this publication give any warranties as to the contents nor accept any contractual, tortious or other form of liability for any consequences, loss or damage which may arise as a result of any person acting upon or using the statements, information or opinions in the publication. This publication is confidential to the addressee and is not to be the subject of communication or reproduction wholly or in part.

Ankit Jain Consultant - Infrastructure Advisory ankit.jain@in.knightfrank.com

KnightFrank: Dehradhun Cricket Stadium report

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