IIFCL asks RBI to increase loan repayment period for infra projects

March 12, 2014

The infrastructure finance company has proposed to allow repayments of loans over 25-30 years

Remya Nair
IIFCL asks RBI to increase loan repayment period for infra projects

IDFs will refinance the existing debt of infrastructure companies, freeing up funds of banks for lending to new projects. Photo: Mint
New Delhi: India Infrastructure Finance Co. Ltd (IIFCL) has approached the Reserve Bank of India (RBI) with a proposal to increase the loan repayment period for infrastructure projects, especially road projects, to make them more viable.
The infrastructure finance company has proposed to allow repayments of loans over 25-30 years, compared with the current 10 years, to lessen the pressure on project developers who face fluctuations in cash flows.
“Project financing is slowing. It will soon come to a dead end. There is a need to extend the economic life of an asset so that the project becomes viable for promoters,” said S.B. Nayar, chairman and managing director of IIFCL, which has presented an approach paper to RBI on this issue.
The proposal was also discussed at a meeting of executives of state-run banks and financial institutions with the finance minister last week.
“When you have large projects and there is 75:25 debt-to-equity, it is impossible for the developers to pay back the loans in the next eight to 10 years,” he said.
Along with giving surplus in the hands of promoters, better private equity valuations for the project and lower user charges like tolls for projects, the risk for banks will also lessen, encouraging them to lend to this sector.
Banks are now the main source of funding for these projects.
Asset-liability mismatches and loan exposure limits to industries set by RBI have, however, made it difficult for banks to provide long-term funding.
The government has been looking at ways to make more funds available for the infrastructure sector, including setting up of infrastructure debt funds (IDFs).
IDFs will refinance the existing debt of infrastructure companies, freeing up funds of banks for lending to new projects. The government has also allowed IIFCL to continue as a sole lender in a project even after the lead lender has exited.
The Planning Commission has projected an investment of $1 trillion for infrastructure development during the 12th Five-Year Plan period ending March 2017.
India Ratings, in a report dated 30 January, had pointed out that only 20% of infrastructure loans were restructured till 31 March 2013 and the proportion could increase to 30-40% over the next two years.
“Restructuring of infrastructure loans will likely continue as the sector grapples with execution challenges and rising costs,” the report had said.
Samir Kanabar, tax partner at consultancy firm EY, said infrastructure projects, which are typically 25-30 years consortium contracts, need funding for a longer duration.
“At present, RBI has set many conditions on funding by banks. But any major relaxation by RBI, like a special carve out for infrastructure projects, given their long-term nature, will also depend on how it perceives the risks on the banks’ balance sheet,” he said.

Road developers welcome move on IIFCL

October 29, 2013

MAMUNI DAS

Road developers welcomed the Finance Ministry’s move to permit India Infrastructure Finance Corporation Ltd (IIFCL) to become the sole lender even at a pre-bid stage, but said the exact impact will be known only after the finer details emerge.

“The very fact that IIFCL can become the sole lender is a good decision. One of the key points is the project developer would not have to go to multiple banks. Right now, for projects valued at Rs 3,000 crore or so, project developers have to go to 12-15 banks as there are exposure limits of Rs 200-250 crore for each firm, except if you go through State Bank of India,” K. Ramchand, IL&FS Transportation Networks Ltd, told Business Line.

“IIFCL becoming involved at a pre-bid level is good. If it gets involved with the project sponsor, such as NHAI for road projects and Port Trusts for port projects, then there will be a layer of banker’s assessment of a project, even before the project goes out for bid. This is likely to solve the current problem of gaps between bankers’ assessment of a project and NHAI’s assessment,” said an NHAI official.

“When can IIFCL become a sole lender? If it can become a sole lender, anytime after the early stage, while this is good for developers, the fear would still be that IIFCL may be stuck with relatively bad projects,” Virendra Mhaiskar, Chairman and Managing Director, IRB Infrastructure Developers, told Business Line.

K.C. Chakrabarty, RBI Deputy Governor, in a paper had said “I would rather wish that entities such as infrastructure debt funds, IIFCL, which are set up to provide take-out financing, should assume initial credit risk in such projects and then sell the same to banks.”

In the context of long gestation projects, financiers of infrastructure projects need to pay a lot of attention to the project at the nascent stage. Having assumed the risk till projects come on stream and start generating revenue, it was natural for a bank to be unwilling to trade a good credit risk to fund another greenfield project, he said in the paper.

Source-http://www.thehindubusinessline.com