Tender Middle East Project

Emaar properties are currently the Persian Gulf region's largest land and real estate developer. After recently completing its most ambitious project till date (Burj Khalifa Downtown development), Emaar properties is embarking on yet another ambitious development project, an ultra luxury mall called The Platinum Park. Slated to be the world's largest-ever mall opening in retail history (even in terms of gross leasable space), The platinum park is expected to surpass several malls including the Dubai Mall, the South China Mall, which is the world's largest, Golden Resources Mall, SM City North Edsa, and SM Mall of Asia. The mall is expected to have a record 75 million visitors in the first year with almost 1.5 million visitors per week. This traffic is expected to increase by atleast 20% annually. The numbers are expected to surpass visitor arrivals to all landmark leisure destinations and theme parks in the world including Times Square (39.2 million), Central Park (38 million), and Niagara Falls (22.5 million). For this prestigious and coveted project, Emaar properties invites commercial bids for Engineering, Design, Supply, Installation, Testing & Commissioning, Trail Operation, Warranty and Handing-over of new Receiving Substation and an indoor distribution substation. Scope of Work

Specifications given by the customer are as follows:Receiving substation: - 100 MVA, 220/11 kV. Part of the supply is expected to also feed another ambitious skyscraper (along with a man-made lake) which is planned in the near future by the same developer. The skyscraper and artificial lake projects would be developed adjacent to The Platinum Park. Distribution substation: - 15 nos X 3 MVA, 11 kV/ 440 V. The load will be distributed to various wings of the mall.

The cost break up for the entire scope of work including the receiving & distribution substations is as follows: S.No 1 2 3 Work Supply Construction Commissioning and Testing Approximate % of total value 70% 20% 10%

Project Duration: 12 months Bid Currency: Multiple currency bids allowed Bid submission Date: 18 March 2014 Bid opening date: 18 June 2014 (5.30 PM) Bid Validity: 90 days (18th March to 18th June 2014) Defects Liability Period (DLP): 6 months post completion of project Evaluation criterion: Currency of the Tender is UAE DIRHAMS (AED) only. However the following has been decided for tenders that include CIF portion in Emaar approved currencies such as EURO, USD, GBP, YEN, CHF, SWEDISH KRONER, etc. a) For the purpose of Commercial Evaluation of the Bids, the exchange rate of the CIF quoted currency against the UAE DIRHAM published by the National Bank of Abu Dhabi (NBAD) on the SAME day the commercial bids are opened (18 June 2014) shall be used b) For the purpose of Letter of award and contract price, Emaar Properties shall pay the fixed price of the respective currencies as submitted in the commercial bid. Payment Terms: Forty-five (45) days from the receipt of correct invoice by Emaar properties. 1. Supply Material and Plants to be incorporated in the Work : i) ii) iii) iv) Ten percent (10%) advance payable to the contractor Seventy percent (70%) on receipt at site Ten percent (10%) as progress payment after installation of the materials & plants in accordance with specification and approval by Owner/Consultant based on actual progress Ten percent (10%) payable 6 months after the competition of the project Defects Liability Period (DLP)

2. Construction i) ii) iii) Ten percent (10%) advance payable to the contractor Eighty percent (80%) payable quarterly within 1 year of the date of award Ten percent (10%) payable 6 months after the competition of the project Defects Liability Period (DLP)

3. Erection and commissioning i) ii) iii) Ten percent (10%) advance payable to the contractor Eighty percent (80%) on issue of Final Acceptance Certificate (FAC) Ten percent (10%) payable 6 months after the competition of the project Defects Liability Period (DLP)

ABG & PBG: Advance payment Bank Guarantee (ABG): ABG of 10% of the value of contract to be given to client on the date of award of contract. ABG value progressively reduces to NIL by the completion of the project. The Performance Bank Guarantee (PBG) shall be in an amount equivalent to Four percent (4%) of the value of the contract in the form of an unconditional irrevocable bank guarantee. PBG shall be valid up to the issue of the FINAL ACCEPTANCE CERTIFICATE and the cost shall be borne by CONTRACTOR.

Technical/Commercial inputs Likely Bid Cost Estimate: USD 30 mio Technical report from engineers The major units for a substation plant are: 1) MVA Transformers 2) Switchgears 3) Protection panels 4) DC System 5) Control cables

Function wise the whole work can be divided as: 1. Supply: The various equipment are bought from vendors. In house facilities are in place to enable production for 60% of the supplies. The company is enlisted on the approved list of vendors for the said equipment. The equipment were earlier being procured from European suppliers for similar tenders. Cheap supplier financing was one of the main reasons behind the sourcing from Europe. Recently renowned Japanese vendors were also empanelled on the approved vendor list for the project and hence the opportunity to fully source from Japan. While in house capacity utilization has become a primary mandate, winning the bid is also important. In house manufactured items are expected to be mainly in INR. For such a project, only Indian supplies will not suffice. The rest 40% of supply will have to be sourced from third party vendors who are on the approved list. It is possible to source third party supplies from Japan and Eastern Europe. Initial indications from sourcing team are that the third party vendors may accept either JPY or Euro depending on the country of the vendor. Supplies constitute about 70% of the total cost. Supply % of Supply cost 60 Own Manufactured 40 Third Party 2. Construction: This includes the civil works required in the project. Primarily, the costs are on cement (40%), steel (40%) and labour (20%). Construction constitutes 20% of the total cost and would be mostly in AED. 3. Commissioning: Final commissioning constitutes around 10% of the total costs. All commissioning costs are incurred in AED. Payment terms with vendors Vendors are insisting on the following payment terms 10% advance 90% on shipment However considering the working capital requirements, appropriate strategy would have to be put in place.

Commodities The major commodity exposures are in the form Copper. Copper Outlook Copper has been in deficit for last 4 years and hence has been one of the best performing base metals in terms of prices. The deficit in copper can be attributed to growing Chinese power grid investment & real estate boom in the last decade and lower mining supply. However, due to high prices in last 4-5 years, many miners were incentivized to invest in both Greenfield and Brownfield expansions. This has led many in the market to believe that copper will turn into surplus by end of next year. In other words, the total supply is expected to exceed the demand by ~ 200,000 MT. Global Copper demand at the end of 2012 was 19 Million MT & supply was at 18.7 Million MT. There is also an expectation that the market will turn into a surplus sooner than later due to continued slowdown in Chinese demand. Copper supply has historically been struggling with predominantly labor related issues amongst many other issues normally faced by miners. The new supply over the period of next 2-3 years will come from African countries like Democratic Republic of Congo and Zambia which have high political risks and infrastructure related bottlenecks. It is in this context that copper bulls are still betting a deficit market for one more year. However, the surplus is inevitable and the facts above cannot be ignored. The timing is the question. Consumption Copper requirement in the said project is to the tune of 500 MT. 1 2 Month 0 0 Copper Consumption (in MT)

3 100

4 150

5 150

6 100

Copper exposure comes mainly in the form of electrical equipment & cables where vendors have linked prices to LME Copper. Market Data LME Copper is currently hovering at $7400/MT. The forward rates are as follows: 1 Month (from Award) 7300 Copper Forward Price ($/MT)

2 7200

3 7100

4 7000

5 6900

6 6800

Forward contracts for Copper are available at discount to current prices. This means that the Copper Curve is in Backwardation. For other metals like Aluminum, the curve is in Contango i.e. Forward prices at a premium to current prices. The decision to hedge can be made only at the inception / award of the project and not during the Bid-toAward phase.

Copper Price Performance over last few years

The objective in copper related risk is: 1. To decide an appropriate contingency to be loaded (if any) based on the Copper outlook provided above and also the fact that the project runs a risk on Copper prices till the time of the award. 2. To decide an appropriate strategy considering the copper forward markets. Competitors 1. Major competition is expected from European electrical majors. Considering the recent sovereign debt crisis in Europe the competitors are expected to bank heavily on the possible as well as widely expected depreciation of Euro against USD which would make their bids competitive. 2. The global macro-economic slowdown is only further expected to make the competitors to quote at desperate prices. 3. A European firm having executed similar type of project with the same client before is also in the foray. 4. A Japanese major having unutilized captive capacity is also expected to bid for the project. In case they win the bid, there are high chances that the company will get some supply / construction scope.

Objectives of the bid 1. To get the job and execute it profitably. 2. Historically the division is having a PBIT of 10%. However the current project would require a careful deliberation between competitiveness and profitability. 3. Use of a carefully calibrated strategy to take advantage of the financial markets overview, tender conditions as well as the competition landscape and balance the risk reward payoff. 4. The business vertical wants to maintain almost zero working capital and in case a credit period is requested by the client, the price would have to be accordingly adjusted keeping the competitive pressures in mind. During a recent informal discussion with the client, it was mentioned that the retention clauses are flexible. Corporate Finance has indicated a cost of 13.5% p.a as Weighted Average Cost of Capital (WACC). 5. Given the customers payment terms, compute the working capital that may be required to be arranged by the business vertical and suggest the trade financing products that may be employed. 6. Though major competition is expected from European & Japanese electrical majors, a number of Chinese and Korean companies are also in the fray bringing cheap financing to the table. The Customer has requested all bidders to arrange for subsidized sources of finance and submit a financing package along with bid. The financing will be taken by Emaar properties, though structuring and facilitation is left to the bidders. 7. Getting this order can help the business vertical to get similar orders from the same client and also from major tenders coming up in Saudi Arabia and Qatar. 8. The business vertical has recently lost 4 similar projects in light of stiff competition. Capacity utilization of the existing facilities would collapse significantly if no orders are booked in the current quarter. 9. Based on recent interactions with the Treasury team, the following analytical inputs have been received from the Treasury Bid-to-award risk hedging (Annex 1) Sovereign default and European Union (EU) break out risk (Annex 2) Macro snapshot (Annex 3) Requirements:1. Your team is expected to submit the price bid in the answer sheets. Final prices mentioned in the Price table shall be taken for calculating the bid prices. 2. Along with the bid price, each team has to make a 10 to 15 slide presentation covering the following:a. Key assumptions made in the bid b. Strategies used in bid pricing / structuring c. Application of financial risk management concepts (Fx & Commodities) in the bid strategy d. Teams shall be evaluated based on the strategy / presentation as well as the competitive price bid submitted after reckoning all the relevant factors