|A, B, C OF CORE FINANCING
What does Infrastructure financing involve?
In India, the financial sector, i.e. the banks and financial institutions can generally raise funds for 5-7 years only. Hence, they would be hesitant to deploy such funds for longer period and face problems at the time of paying their own liabilities.
Further, since a lot of these projects would be run on commercial basis for the first time, there are several uncertainties at each level construction, operation, revenue collection, etc. Due to these peculiar problems, appraisal and financing of infrastructure projects requires special skills and structures.
How are these problems being addressed?
Over the last six-seven years, financial institutions have taken the lead in understanding the dynamics of infrastructure financing. They have managed to identify the risks at each stage of these projects, and they have looked at evolving adequate safeguards to alleviate these risks.
While lenders have sharpened their loan structuring skills they have also evolved several concepts which provide more security to lenders and are expected to attract more funds into the sector. The major concepts are cash flow financing, usage of government guarantees to induce private financing, concept of escrow mechanism to ensure that lenders get first charge on a project's cash flows and new concepts like take out financing and subordinate debt financing.
What is cash flow financing?
In cash flow financing, the lenders estimate the cash flows of a project over its lifetime to see what kind of debt burdens it can support and at what rates. Then, the amount of debt, financing rate and the way of repayments can be tailored to fit the cash flows of the project. This helps both the lender and the project promoter.
What is an escrow mechanism?
The escrow mechanisms have been developed in case of independent power projects (IPP) which are built by private parties out of private funds and supply electricity to the state electricity boards (SEBs). Essentially, it ensures that out of the SEBs' revenues, the debt obligations of the financing institutions will be paid first of all.
This is done by having some identified revenues being passed through a separate account called the escrow account to which the lenders also have a right to appropriate the funds in case the SEB defaults in making payments. By having the power to be assigned those funds in case of default gives an added comfort to the lender and allows the IPP to raise financial assistance.
However, escrowable amounts are limited in each SEB and once these funds are appropriated the SEB may not have much assured revenue flows for its other expenses.
What is take-out Financing?
One, of the major problems of financing infrastructure projects is that while requirements are for long periods, Indian banks and financial institutions can traditionally lend funds only for say 5-7 years.
Take out financing allows banks to finance 15-year projects through 5-7 year money. In India, the Industrial Development Finance Corporation (IDFC) offers this facility to banks and Institution. It offers to take out the loans from the bank's books after an initial period, say 5 years. IDFC can then keep the loan in its own book, or lend it to another bank, for say another 5 years. While the project promoter has got the loan for 15 years, through this mechanism, banks can participate in loans on a part-to-part basis.
In another variant, the take-out financier could offer a refinance facility to the original lender at the end of five years instead of taking out the loan from its books.
What is subordinated debt financing?
Institutions have also talked about funding infrastructure project through a quasi-equity-instrument called subordinated debt-which may have flexible maturity and payment terms.
In this case the borrower gets money which have a longer tenor, and has the comfort of paying it after he has met the secured debt obligations. The payment terms can also be made flexible. Such loans could even be converted to equity at a later date, if desired.
Six banks commit to IDFC for `Take-Out'
UTI joins hands with Australian firm for
The fund would be named UTI-AMP Infrastructure Fund. The proceeds would be invested in projects relating to roads, ports, airports and power plants.
NTPC's installed capacity rises to 17735
During 1998-99 NTPC achieved a net turnover of Rs. 14,022 crore (an increase of 10% over the preceding year.
The provisional (after tax) profit for the year is Rs 2511.87 crore an increase of 14.3 percent over the previous year.
Rs. 68 cr power plant in Andamans
The State Bank of India (SBI) has sanctioned 60 per cent of the Rs.50 crore loan component.
Andaman Island's demand for power is not met fully. There are currently only two power plants of 12.5 mw capacity each in the territory.
14 new national highways covering 11 states
The total length of NHs in the country, which stood at 49,585 km has now stands at 51,996 km, crossing 50,000 km mark.
The additional NHs will help provide better connectivity to ports, coastal areas and tourist centres, besides opening up backward areas.
The state-wise length of new NHs is as under..