Infrastructure Financing in India_Report

8/12/2019 Infrastructure Financing in India_Report

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Infrastructure Project Financing 2013

TABLE OF CONTENTS

Acknowledgement!

E"ecuti#e Summar$%

A&out Bank of &aroda'

Introduction(

Features of Infrastructure Finance)

Sources of Infrastructure Financing in India)

*rowt+ Potential,,

*o#ernment Initiati#es,!

-ig+lig+ts of .nion Budget !/,01,%,%

2oad A+ead,%

Issues 3 c+allenges constraining infrastructure funding,'

Infrastructure Financing in Ot+er Countries,)

Infrastructure Financing &$ commercial Banks,)

Ste4s in Infrastructure Finance ,)

2enewa&le Energ$ Project Finance!/

Basic Com4an$ Information0/Project 5etails0!

Project Cost00

6eans Of Finance00

Credit A44raisal 5etails0%

TE7 Stud$ Anal$sis0(

Securit$ and Banking arrangements08

6ilestones of t+e Project08

Project Im4lementation09

2easons for dela$ in Im4lementation%,

Current Status%!

Swot Anal$sis%0

2ecommendations%%

2eferences%'

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E:EC.TI7E S.66A2;

T+e fast growt+ of t+e econom$ in recent $ears +as 4laced increasing stress on

a#aila&le infrastructure suc+ as electricit$< railwa$s< roads< 4orts< air4orts< irrigation

and ur&an and rural water su44l$ and sanitation< all of w+ic+ alread$ suffer from a

su&stantial deficit from t+e 4ast in terms of ca4acities as well as efficiencies in t+e

deli#er$ of critical infrastructure ser#ices T+e econom$ can get a &oost t+roug+

im4ro#ed infrastructure T+e im4lementation of infrastructure 4rojects itself 4ro#ides

jo&s and su44orts economic de#elo4ment and it contri&utes to an im4ro#ed =ualit$ of

life for mankind

As t+ese 4rojects re=uire +uge ca4ital in#estments and t+e returns are s4read o#er

longer time +ori>ons< financing t+e e#er growing needs of infrastructure 4rojects

remains an area of t+rust ? concern

T+is re4ort t+rows lig+t on different sources of infrastructure financing a#aila&le in

India and t+eir e"4osure to infrastructure 4rojects T+e growt+ 4otential< go#ernment

initiati#es and issues and c+allenges of infrastructure financing sector are discussed

in &rief Ste4s followed in issuing finance to infrastructure finance 4rojects are

discussed along wit+ different forms of funding a#aila&le from commercial &anks

Bank of Baroda@s financing to renewa&le energ$ 4roject is taken as sam4le 4roject

and +as &een studied in details and major 4arameters w+ic+ are considered for loan

a44ro#al 3 furt+er de&t ser#icing are outlined along wit+ 4roject e"ecution details

Finall$ &ased on findings of t+e stud$ some recommendations are made

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ABO.T BAN OF BA2O5A

Bank of Baroda BoB is an Indian state1owned &anking and financial ser#ices

com4an$ +ead=uartered in 7adodara It offers a range of &anking 4roducts and

financial ser#ices to cor4orate and retail customers t+roug+ its &ranc+es and t+roug+

its s4eciali>ed su&sidiaries and affiliates in t+e areas of retail &anking< in#estment

&anking< credit cards and asset management Its total glo&al &usiness was 8


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&anking section Bank of Baroda offers 4roducts and ser#ices like w+olesale &ankingero in real terms -owe#er< once

again as in t+e case of demand< w+ile real returns could &e near >ero t+e$ are

unlikel$

to &e negati#e for e"tended 4eriods of time w+ic+ need not &e t+e case for

manufactured goods 2eturns +ere need to &e measured in real terms &ecause oftent+e re#enue streams of t+e 4roject are a function of t+e underl$ing rate of inflation

SO.2CES OF INF2AST2.CT.2E FINANCIN* IN IN5IA

In first 0 $ears of ele#ent+ 4lan< &udgetar$ su44ort constituted H%' 4er cent of t+e total

infrastructure s4ending T+e de&t from Commercial &anks< NBFCs< Insurance Com4anies

and t+e e"ternal sources constituted H%, 4er cent of t+e funding w+ile t+e &alance ,% 4er

cent was funded t+roug+ E=uit$ and F5I

Sources of %unds for infrastructure -nvestment

Banks:

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T+ere +as &een a ra4id growt+ in &ank credit to infrastructure 4rojects wit+ &anks

contri&uting to t+e tune of !, of t+e total in#estment during first 0 $ears of ,,t+ fi#e

$ear 4lan, 6ost of t+is funding +as &een 4ro#ided &$ Pu&lic Sector &anks and in

some cases t+e sectoral 4rudential ca4s +a#e almost &een reac+ed es4eciall$ for

4ower sector t+us constraining an$ furt+er lending to t+ese sectors Banks +a#e

4rudential e"4osure ca4s for infrastructure sector lending as a w+ole as well as for

indi#idual sectors

Banks ,ending to'ards infrastructure investment

on )anking financia, com*anies (B%/s+

O#er t+e ele#ent+ 4lan 4eriod< NBFCs lending increased s+ar4l$ 4rimaril$ due to

+ig+er demand from 4ower< telecom and roads sectors

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ro't" registered )y B%/s to'ards infrastructure investment and B%/s

,ending

ife insurance /om*anies

Life insurance com4anies are re=uired to in#est at least ,' of t+eir Life Fund in

infrastructure and +ousing In#estment &$ insurance com4anies in !/,! +as onl$

&een ,/ of insurance life fund A.6 w+ic+ indicates furt+er 4otential to utili>e

insurance com4anies to fund infrastructure de#elo4ment 6oreo#er insurance

4enetration is estimated to continue to rise< wit+ t+e insurance 4remium e"4ected to

grow from t+e current a44ro"imate % of *5P to (% of *5P &$ t+e end of t+e

twelft+ 4lan T+is will generate furt+er 4otential for infrastructure funding +owe#er it

will &e su&ject to management of 4rudential and regulator$ constraints in t+e sector

terna, commercia, )orro'ings (/Bs+

T+e s+are of ECB in total infrastructure in#estments +as &een recording a decline

T+is could &e a reflection of t+e wa$ regulator$ en#ironment is #iewed &$ t+e

international in#estors T+e$ are not keen on making long term in#estments in

en#ironments w+ic+ +a#e regulator$ idios$ncrasies .nder1de#elo4ed financial

markets?4roducts ma$ +a#e also contri&uted to t+is dro4 in ECB funding

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S"are of /Bs in tota, infrastructure investment

uity

A large 4art of e=uit$ in#estments relies on foreign in#estments wit+ domestic

in#estment institutions not s+owing significant interest in taking e=uit$ in

Infrastructure 4rojects T+e e=uit$ in#estment for t+e twelft+ 4lan 4eriod is estimated

to &e 2s %'( lak+ crores

T+ere are t+ree 4rinci4al forms of finance for infrastructure ser#ice deli#er$

1.Pu),ic %inance In industriali>ed countries 4u&lic finance consists of go#ernment

4ro#iding e=uit$ financing seed ca4ital< in C+ina@s terms t+roug+ general &udget

reser#es< earmarked reser#es< self1raised funds eg licensing fee< and sale< rental

or leasing of go#ernment assets< and intergo#ernmental grants and fiscal transfers

5e&t financing in t+e 4u&lic finance s$stem is t+roug+ 4olic$ loans at concessional

rates< su44lier credits< and fi"ed income securities in t+e form of ta"1secured &onds

and re#enue &onds secured &$ 4roject1related re#enue streams In some casesation of cor4orate assets and assignments of recei#a&les

3. Pro4ect %inance Project finance consists of go#ernment< cor4orations and PPP

financing in#estments solel$ t+roug+ t+e re#enue stream of t+e infrastructure

4rojects wit+out taking recourse to go#ernment guarantees 6ost 4roject finance is

made a#aila&le &$ 4roject1s4ecific com4anies wit+ e=uit$ +eld &$ s4onsors E=uit$

takes t+e form of s4onsor in#estment in s+are ca4ital of t+e 4roject com4an$ 5e&t is

full$ secured t+roug+ t+e re#enue stream of t+e infrastructure 4rojectJ t+is stream is

assigned to lenders t+roug+ securit$ agreements wit+ trustees and does not a44ear

on s4onsor com4anies@ &alance s+eets 5e&t financing usuall$ takes t+e form of a

com&ination of &ank loans usuall$ s$ndicated for large 4rojects< s4onsor loansed to lenders

*2OT- POTENTIAL

Planning commission is targeting an in#estment of ', lak+ crores o#er t+e duration

of t+e twelft+ fi#e $ear 4lan w+ic+ is almost dou&le t+e amount 4ro4osed under t+e

ele#ent+ 4lan +ile t+e s+are of 4u&lic in#estment is 4rojected to decrease from

(! to a le#el of '0 in t+e twelft+ 4lan< t+e s+are of 4ri#ate in#estment is 4rojected

to increase from 08 ele#ent+ 4lan to %) twelft+ 4lan of t+e total in#estment

In com4arison to ele#ent+ 4lan< a #er$ significant growt+ K,// in in#estments

Budgetar$ 3 Pri#ate +as &een 4rojected for Non1Con#entional Energ$< 62TSes t+e im4ortance of accelerating t+e in#estments in

infrastructure to &oost t+e countr$@s slowing econom$ T+erefore< it +as set a

massi#e target for dou&ling in#estment in infrastructure from 2s !) lak+ crores

ele#ent+ 4lan !/,,?,! 4rices to 2s ', lak+ crores during t+e twelft+ 4lan 4eriodes< can 4ro4el India@s economic growt+ to a +ig+er trajector$

-I*-LI*-TS OF .NION B.5*ET !/,01,%

Pro4osed allocation of 2s ', lak+ crores towards infrastructure in#estment

during t+e ,!t+ Plan 4eriod wit+ H%) e"4ected to come from t+e 4ri#ate

sector New I5F launc+ed to ta4 t+e o#erseas markets for long term 4ension and

insurance funds< for financing infrastructure 4rojects Four I5Fs +a#e &een

registered wit+ SEBI out of w+ic+ two of t+em were launc+ed in t+e mont+ of

Fe&ruar$< !/,0 2s '/


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Ca&inet Committee on In#estment CCI +as &een set u4 to monitor and

re#iew infrastructure 4rojects

2OA5 A-EA5

A coordinated effort is re=uired from t+e go#ernment< 2eser#e Bank of India %9 B!S -M-=S:

etter >f /redit:

A letter of credit is a commercial instrument of assured 4a$ment and widel$ used &$

t+e &usiness communit$ for its #arious ad#antages It is an instrument &$ w+ic+ a

&ank undertakes to make 4a$ment to a seller on 4roduction of documents sti4ulated

in t+e credit T+e credit s4ecifies as to w+en t+e documents are 4resented to t+e

4a$ing &ank or at some future date< de4ending u4on t+e terms sti4ulated in t+e

credit

Bank uarantee:

*uarantee is a contract to e"ecute t+e 4romise< or disc+arge t+e lia&ilit$ of a t+ird

4erson in case of +is default In t+e ordinar$ course of &usiness< t+e &ank often

issues guarantees on &e+alf of its customers in fa#our of t+ird 4arties +en t+e

&ank issues suc+ a guarantee< it assumes a res4onsi&ilit$ to 4a$ t+e &eneficiar$< in

t+e e#ent of a default made &$ t+e customer A &ank guarantee ena&les t+e

customer de&tor to ac=uire goods< &u$ e=ui4ment< or draw down loans< and

t+ere&$ e"4and &usiness acti#it$eferred Payment uarantee:

A deferred 4a$ment guarantee is a contract under w+ic+ a &ank 4romises to 4a$ t+e

su44lier t+e 4rice of mac+iner$ su44lied &$ +im on deferred terms< in agreed

installments wit+ sti4ulated interest in t+e res4ecti#e due dates< in case of default in

4a$ment t+ereof &$ t+e &u$er

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STEPS IN INF2AST.2.CT.2E FINANCE

Page!0

u!mission of "pplication !y t#e !orro$er

Preliminary %nformation Collection&

%nformation 'emorandum

Pro(ect "ppraisal

Risk 'easurement and Rating

Preparation of Final proposal


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1. Su)mission of !**,ication )y )orro'er:

T+e &orrower a44roac+es t+e &ank wit+ t+e 4ro4osal to finance a 4roject Borrower

+as to gi#e a written a44lication in fa#our of &ranc+ +ead containing t+e &rief

information of a44licant< com4an$< industr$< a&out Project< Project duration and fund

re=uirement from t+at &ank

2. Pre,iminary -nformationC -nformation Memorandum:

T+e &orrower +as to 4ro#ide t+e Bank wit+ t+e 4reliminar$ information T+e &orrower

+as to 4re4are a detailed 4roject re4ort< w+ic+ is su&mitted to t+e &ank and on t+e

&asis of w+ic+ t+e final re4ort is 4re4ared In case of a s$ndication arrangement< t+e

lead arranger 4re4ares an Information 6emorandum in consultation wit+ t+e

&orrowing entit$

3. Pro4ect !**raisa,:

Page!%

Proposal for$arded to t#e sanctioning

aut#ority

Pro osal re ectedanctioned

anction Letter issued

Documentation ) Dis!ursement

Credit monitoring* uper+ision and

Follo$,up


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A detailed and critical a44raisal of t+e 4roject is necessar$< &efore taking a final

decision a&out financing an$ 4roject< w+et+er indi#iduall$ or jointl$ T+e a44raisal

met+odolog$ of t+e &anks s+ould kee4 4ace wit+ e#er c+anging economic

en#ironment and also addresses t+e #arious t$4es of risks #i> industr$< &usinessation is considered at realistic le#els and t+e sales #olume is

calculated in accordance wit+ t+e same Economic #ia&ilit$ of t+e 4roject +as &een worked out on t+e &asis of different

met+ods Sensiti#it$ anal$sis for t+e 4roject was carried out 2e#ised estimated 4roject cost of 2s'0)% crores is 4ro4osed to &e funded

wit+ total term loan of 2s0,// crores and 4romoters contri&ution of 2s!!)%

crores Preference S+are Ca4ital of 2s,9/% crores and e=uit$ s+are ca4ital

of 2s0)/ crores In #iew of increased =uantit$ of generation and collection of waste< com4an$

modified its design 4arameters from t+e original 4lan of ! lines of ,'/ TP5

eac+ for 0// TP5 of waste to an installed ca4acit$ of two lines of !// TP5

eac+ for %// TP5 waste T+e c+ange in design 4arameters +as meant t+at

si>ing of all e=ui4ments +as c+anged and some additional

e=ui4ment?au"iliaries are re=uired including one gas engine T+e re#ised ci#il cost to &e certified &$ &ank@s em4anelled arc+itect Suita&le

condition sti4ulated T+e com4an$ +as o&tained major a44ro#als for setting u4 t+e 0// TP5?0 6

4lant -owe#er< t+e same would &e re=uired to &e suita&l$ amended? modified

for t+e en+anced ca4acit$ of %// TP5? % 6 of t+e 4lant

SEC.2IT; AN5 BANIN* A22AN*E6ENTS

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Primar" Securit":

-$4ot+ecation of Plant and mac+iner$ created out of &ank finance

E=uita&le mortgage of land and &uilding leased

B* 6argin

ollateral:

2H"ita)*e mortgage of Offi%e in Andheri

D-Rs

P*edge of 1,


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ca4acit$< t+e same terms of t+e Power Purc+ase will &e a44lica&le to

en+anced ca4acit$ as 4er t+e Power Purc+ase Agreement T+e com4an$ +as taken u4 t+e issue wit+ 6a+aras+tra Electricit$ 2egulator$

Commission 6E2C for increase in tariff t+roug+ an A44eal to t+e A44ellateTri&unal for Electricit$ and an order to &e awarded tariff of u4to 2s(%0 4er

unit +as &een awarded in fa#or of t+e com4an$ 5uring t+e im4lementation 4eriod in !/,,< t+e 2ST6C a44roac+ed t+e

5e#elo4ers to en+ance t+e ca4acit$ of t+e 4roject to %// TP5 % 6 due to

t+e increased generation in 2ST as 4er t+e terms of t+e Concession

Agreement T+erefore< an additional term loan of 2s 80/ crores for total 4roject costing

2s '0)% cr additional 2s ,!') cr wit+ 5E ratio of ') %0 was sanctioned

&$ Bank of Baroda in 6arc+ !/,! for t+e 4ro4osed e"4ansion T+e 4roject +as &een commissioned and 4ower &eing generated is &eing

used for Ca4ti#e consum4tion T+e 4roject is awaiting final grid connecti#it$

a44ro#al to start commercial w+eeling of 4ower and com4an$ is e"4ecting

first 4ower &ill on 0,/0!/,0-owe#er< t+e com4an$ +as started selling

com4ost since 5ecem&er !/,! and it e"4ected to earn re#enue of 2s !'1

0/ lacs In !/,!1,0 from com4ost

P2OECT I6PLE6ENTATION

Project was initiall$ conce4tuali>ed for t+e de#elo4ment of a aste1to1energ$

facilit$ for t+e scientific 4rocessing and dis4osal of 0// Tonnes 4er da$ TP5

of 6unici4al Solid aste 6S to &e deli#ered &$ t+e 2ST 6unici4al

Cor4oration 2ST6C As 4er t+e 4rocess of 6E2C< in order to o&tain t+e order for tariff on w+ic+

&asis t+e PPA waste was to &e entered for esta&lis+ing t+e 4roject #ia&ilit$

Infrastructure Financing in India_Report

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