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Tamilnadu Urban Development

Fund (TNUDF)

A Presentation

January 2003

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Scheme of Presentation

Introduction

Purpose of the fund

Objectives

Eligible borrowers / sectors

Lending policies and procedures

Project Prototypes

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Introduction

A Trust established under the Indian Trusts Act, 1882,

by GoTN, ICICI, HDFC and IL&FS with a line of credit

from the World Bank

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Purpose of the Fund

TNUDF is a trust fund engaged in the development ofurban infrastructure in the state of Tamilnadu. This trustwas created as part of a restructuring exercise of an

existing World Bank credit to the Government ofTamilnadu (GoTN) in September 1996.

Under the World Bank credit of Rs.167 crores, theMunicipal Urban Development Fund (MUDF) was set

up in 1988 to fund urban infrastructure needs. The fundhas been in existence for 8 years and had extended loansof about Rs.200 crores to 74 Urban Local Bodies(ULBs) upto September 30, 1996.

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Purpose of the Fund

Successful track record enabled GoTN to broaden the scope of

the fund so as to attract private capital into urban infrastructure,

and facilitate better performing ULBs to access capital markets.

In 1996, GoTN, with the assistance of World Bank, invited three

financial institutions namely, ICICI, HDFC and IL&FS to

convert MUDF into a full fledged trust, namely TNUDF with a

private fund manager to deploy the resources of the trust.

Accordingly, TNUDF was established as a trust under the IndianTrusts Act 1882, and is managed by an Asset Management

Company, Tamilnadu Urban Infrastructure Financial Services

Limited (TNUIFSL)

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Fund Objectives

Fund urban infrastructure projects which improve the

living standards of the urban population;

Facilitate private sector participation in infrastructurethrough joint venture and public-private partnerships;

Operate a complementary window, the GRANT FUND,

to assist in addressing the problems of the urban poor.

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Eligible borrowers / sectors

Urban Local Bodies (ULBs), statutory boards, public

sector undertakings and private corporates are the

eligible borrowers of the Fund. The eligible sectors include water supply, sanitation,

solid waste management, roads / bridges, transportation,

sites and services and integrated area development

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Lending policies & procedures

Eligible items for TNUDF funding

Only for capital expenditure

Civil works

Services

Goods / Materials

TNUDF will not fund

Land acquisition costs O&M expenditure / other revenue expenditure such as salaries etc.

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Eligibility Criteria

For ULBs etc.

TE / TR < 1

Annuity / Total revenue < 30%

In case where ULBs fail to meet above criteria, theproject specific returns (IRR) should be greater than18.5% p.a.

For private sector borrowers

Long term debt < 1.5Net worth

Net fixed assets > 1.5

Long term debt

Average DSCR > 1.5

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Security Measures

Special recovery mechanism such as escrow accounts of

property tax, water charges etc. and hypothecation of

movables are being put in place. In case of commercial complexes,default option of

conversion of upto 40% of loans outstanding into office

space is being stipulated.

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Commercial and Non-commercialThree fold categorisation indicates on the demand side certain types

of urban infrastructure such as toll bridges, markets and bye-

passes can be supported by reliance on project cash flows toservice debt.

Projects such as stand alone commercial complexes and office

space which rarely recover debt service from rentals are not worth

investing in and do not constitute infrastructure in any real sense.

Second, environmental infrastructure namely water supply,sanitation and solid waste need a mixture of debt and grant

financing and should attempt to recover appropriate user charges.

Third, other municipal infrastructure such as internal roads, parks,

crematoriums etc would have to rely solely on general revenues to

service debt.

TNUDF Experience - Project Proto types

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TNUDF Experience - Commercial

KARUR BRIDGE

Based on these principles, TNUDF has facilitated the first

BOT / Toll bridge, contracted by an ULB in India at an

estimated cost of Rs.16 crores.

The users of the bridge are freight traffic with the capacity to

pay. As the bridge would substantially reduce vehicle

operation costs (VOC) and time, cash flows to the operator is

expected to be predictable.

The enabling provisions of Tamilnadu State Toll Act has been

amended allowing ULBs to enter into BOT style operation,

thus offering the investor a stable regulatory framework.

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Toll Fixation Criteria

The tolls are as follows:

Vehicle Type Single Multiple Monthly

Pass (Rs.) Pass (Rs.) Pass(Rs.)Car/Jeep/Van 10 15 300

LCV, Tractors 25 35 1050

Trucks 30 45 1350

Bus 30 60 1800

Multi-axle trucks, Cranes,

Earth-moving machines & 50 -- --

similar heavy vehicles

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MADURAI BYE PASS

Madurai the second largest city in Tamilnadu, is a Corporation

with an area of 51.82 sq.kms and a population of 9.4 lacs (1991census). It is a major commercial and religious centre in the

Southern region, linking important trade and tourist flows within

Tamilnadu.

The scheme is the construction of a 2 lane Inner Ring Road (IRR)of 27.2 kms between Kanyakumari Road and Melur Road; for

which land acquisition has been completed. The IRR would also

include construction of 2 Railway Over Bridges (ROB), one each

at Ramnad road and Tirunelveli road, and a high level bridge

across the Vaigai River.


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MADURAI BYE PASS

Madurai replaced its traditional borrowings in the

form of long term loan by its own debt paper.Madurai is the first municipal corporation in Tamil

Nadu, which has issued debentures for its project

refinancing viz., the Inner Ring Road. The servicing

of the bonds would be met out of the toll collectionsarising out of the traffic on the road. This issue

resulted in a flat cost saving of about 2.50 to 3.00

percentage points to the corporation.


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Madurai Toll Collection

(All Fig Rs in Lacs)

S. No Months Amt days/ Mt Avg daily Avg Mt

1 Nov -00 35.31 30 1.18

2 Dec 40.47 31 1.31 37.89 (for Nov-Dec)

3 Jan-01 42.23 31 1.36

4 Feb 41.54 28 1.48

5 March 43.03 31 1.39

6 April 45.62 30 1.52

7 May 43.71 31 1.41 44.67 (for April-May)8 June 43.20 30 1.44

9 July 52.17 31 1.68

10 Aug 49.25 31 1.59 50.71 (for July-Aug)

Total 436.54 304 1.44 43.65 (Avg over 10 mts)

Analysis :

Total Collection till date 436.54

No. of Days 304 days

Avg. Daily Collection 1.44 lacs

Avg. Monthly Collection 43.65 lacs

Avg. Collection in Nov - Dec 00 37.89

Avg. Collection in April-May 01 44.67 17.9% Increase

Avg. Collection in July-Aug 01 50.71 13.5% Increase

Rites Projected Collect. - 31st March 01 458.0 FY 2001

Actual Collection till March 01 202.6

Avg Collections for the 5 mts ended March 01 40.5

Achivement as a % of projections 44.2%

Rites Projected Collect. p.m in 2001 80.15 FY 2002

Avg Collections till date pm in 2001 46.79Achivement as a % of projections 58.4%

Trend Analysis

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TNUDF Experience

Commercial - Madurai Bye pass

TNUDF E i

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TNUDF Experience

Loan Grant Blending - Storm Water Drain in

Valasaravakkam

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SOLID WASTE MANAGEMENT

CONTRACTS

Conversion of Municipal Solid Waste intoOrganic Manure (50 tpd plant)

Supply of pay contract between ULB and

Private Sector operator at Rs.3.50 pt + leaserentals

Pressure / Incentive for the ULB to keep the

streets clean.


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TNUDF Experience

Public - Private Partnerships

ALANDUR MODEL

15,000 Households out of 17,000 have

contributed Rs.5000/- per householdrepresenting one third of Project Cost of

Rs.34 crores.

Initial tariff in Alandur fixed at Rs.150 perhouse per month.

Private Participation in that the private

sector has invested equity in the STP.

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TNUDF Experience

Public - Private Partnerships

ALANDUR MODEL

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Vision

TNUDF would position itself as a strategic intermediary

linking capital markets with Urban Infrastructure needs.

Positive performance during the plan period, achievementof lending targets, high repayment rates and quality

infrastructure would demonstrate a track record enabling

market access for the Fund.

Capacity building activities, financially disciplined ULBs

and strong project pipeline are enabling factors.

Preparation includes rating of TNUDF risk assessment of

ULBs, setting up a credit enhances, revenue intercepts etc.

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Resources

1) As a part of its vision raising exercise, TNUDF raised

Rs.110.05 crores from the capital market during September -

November 2000, by way of issue of unsecured non convertible

debentures of Rs.1,00,000/- each. This is the first non-guaranteed, unsecured bond issue by a financial intermediary in

India, with urban municipal cash flow as its base.

2) The terms of the issue are as follows:

Size of the issue Rs.110.05 croresTenor 5 years

Coupon 11.85% p.a.

Interest payment Half yearly on May 7th

and November 7th

Redemption In Five equal annual instalment

Credit Rating LAA+(SO) by ICRA Ltd.,

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Way Forward - Water Sanitation Fund

Urban Infrastructure, especially water and sanitation investments

require long term debt on account of externalities over time and

space, severe fiscal constraints on the supply of equity from State and

local Governments for new investments and substantial low income

population constraining the ability to pay for high financing costs.

Consequently, the need to link city infrastructure financing

requirements with domestic capital markets is well understood.

Debt finance is a pre-requisite for undertaking essential civicinvestments, and in the long run, domestic savings through capital

markets would have to be, predominant source of supply.

The need for an institutionalised mechanism to raise low cost funds

for water and sanitation is clear cut with the US Bond Bank as apotential model.

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WAY FORWARD

Linking Markets & Cities with Intended Use Plans

Creation of a revolving fund by GoI - States

Tax concessions for municipal bonds by GoI

Structure a statutory framework to manage the fund

Borrowing eligibility criteria to be established

Project implementation procedures including rational & quickprocurement

Framework for tariff setting - through a democratic process

Fixation of rational levels of upfront contribution by thecommunity / local body

Capacity building for the raters/Merchant Bankers

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Resources Water and Sanitation

Pooled Fund

A Pooled entity namely, a Trust called Water and

Sanitation Pooled Fund (WSPF) has been registered.

The initial contribution of the trust is Rs.10,000/-

Objective is to link civic financing needs with the

capital market

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Pooled Fund

The terms of the issue are as follows:Issue Water and Sanitation Pooled Fund

Tenor 15 years

Put / call option At the end of 10th year

Redemption In 15 equal annual instalments

Interest payment Annually in diminishing balance

Face Value of a Bond Rs.1,00,000/-

Credit Rating AA (SO) by ICRA,Ind AA (SO) by Fitch Ratings

Guarantee 50% of the principal guaranteed by USAID and GoTN has undertaken

to top up the shortfall through interception of State Finance

Commission Devolution

Debt Service Reserve Fund Rs.6.90 crores to be invested in highly secured and liquid investments

in the name of Bond Service Fund.

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Pooled Fund

Sector Rs. (crs)

Banks 30.25

Provident Fund Trust 0.1630.41

The subscribers include Banks and Provident Fund Trust.

The sectorwise subscription of the bonds is as follows:

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Pooled Fund

LIST OF POOLED PROJECTS

Rs. In lakhs

S.No. Particulars Project Cost Loan amt Loan

Sanctioned Disbursed

Water Supply Schemes:

1 Ambattur Municipality 336.56 67.32 67.32

2 Tambaram Municipality 182.00 109.20 109.20

3 Madhavaram Municipality 325.00 195.00 105.75

4 Rajapalayam Municipality 85.00 51.00 51.00

Adjacent Urban Areas - AUA

5 (I) Alandur Municipality 427.00 403.00 403.00

6 (ii) Pammal Municipality 378.00 357.00 357.00

7 (iii) Ankapathur Town Panchayat 188.00 178.00 178.00

8 (iv) Ullagaram Town Panchayat 298.00 281.00 281.00

9 (v) Porur Town Panchayat 579.00 547.00 547.0010 (vi) Maduravoyal Town Panchayat 146.00 138.00 138.00

11 (vii) Valsaravakkam Town Panchayat 189.00 179.00 179.00

12 (viii) Meenambakkam Town Panchayat 17.00 16.00 16.00

Under Ground Drainage:

13 Madurai Corporation 1407.00 500.00 325.00

4557.56 3021.52 2757.27

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TNUDF - Institutional Positioning

PAPER ONE

RESERVE FUND MODELSTRUCTURE

Simplified Flow of Funds

For Reserve Model Pooled Financing

Sovereign

Govt.

TransferPayments

Sovereign

Govt.

Grant

ReserveFund

RevenueIntercept

Pooled FinancingAuthority

Local Govt.Project

Investors

Trustee

Bonds

Long term

Principal & InterestPayments

If necessary

Local Govt.Project

Local Govt.Project

Local Govt.Project

Local Govt.Project

Funds

Market Rate

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