Bucking The Downturn

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[Good Signs: Delhi Airport Metro Express has secured a Rs 2,500-crore funding (Pic By Bivash Banerjee) Belying the notion that sources for long-term finance for infrastructure projects have dried up, three important infrastructure projects announced fund tie-ups last month. These involved a slew of banks committing money to the tune of Rs 9,000 crore. In fact, in January, the non-availability of long-term funds for infrastructure projects forced the government to open a special window for refinance through India Infrastructure Finance Company (IIFCL). The three projects that announced fund tie-ups are: Reliance Infrastructure-promoted Delhi Airport Metro Express project, whose debt requirement is Rs 2,000 crore while the commitment from lenders led by Axis Bank is Rs 2,500 crore; Phase II of the Krishnapatnam Port project in Andhra Pradesh, where a clutch of 16 banks led by the State Bank of India has extended a syndicated term loan facility of Rs 3,000 crore; and the 1,200-MW Kalisindh power project in Rajasthan &mdash; a group of 11 banks led by IDBI have released a working capital credit line of Rs 3,850 crore to BGR Energy, which executes the engineering, procurement and construction (EPC) works for the project. Such fund arrangements have come as a relief in the current downturn. Just three months ago, Montek Singh Ahluwalia, the deputy chairman of the Planning Commission had told BW that &ldquo;shortage of long-term funds is a key constraint&rdquo; for infrastructure finance. Prime Minister Manmohan Singh, too, had said in October last year that &ldquo;external commercial borrowings, which are used by the corporate sector have dried up, as have international suppliers credits&rdquo;. Singh also said advisories had been issued to banks to ensure that borrowers are provided adequate credit including working capital. So, do the fund tie-ups or financial closures announced in March indicate a change in lending sentiment? Companies such as BGR have said that their working capital credit line had been arranged &ldquo;in an environment of tough credit situation in financial markets&rdquo;. On the other hand, Jitender Balakrishnan, deputy managing director, IDBI said funds would be available for good projects, and IDBI itself was processing fund tie-ups for infrastructure projects worth Rs 50,000 crore. Interestingly, it is the domestic banks that are forthcoming. Foreign banks are not part of the consortia of banks that have committed funds (expect IIFCL, UK for the metro rail project). While the credit line for the power project is for EPC works, the fund commitment from lenders for both the airport metro and the port project forms part of the financial closure. Given the nature of risks involved in capital-intensive infrastructure projects and the fact that debt funds range between 60 and 70 per cent of the project cost with repayments periods stretching to a decade, banks/financial institutions always apply detailed scrutiny on the economics of the project, and even require good payment security mechanisms. However, innovative project sweeteners for the Delhi airport metro project has helped improve the viability of the project. The crucial civil works for the project that includes building of viaducts, stations, etc. have been undertaken by the Delhi Metro Rail Corporation (DMRC), says an official from Reliance Infrastructure. So, DMRC&rsquo;s contractual commitment to bring the airport metro project to a particular stage reduces the concessionaire&rsquo;s risk in executing the project to that extent. Indications are that there will be more financial closures in the power sector in the coming weeks. (Businessworld Issue Dated 14-20 April 2009)