possible financing options for projects in india
TRANSCRIPT
Deepa Chandiramani 08
Ansel Fernandes 21
Rucha Jadhav 39
Chinmay Kambli 46
Akshay Nagbhire 87
POSSIBLE FINANCING OPTIONS FOR PROJECTS IN INDIA
CONTENT Bank Financing & Own Funds IIFCL IFCs FDI Infrastructure Bonds Infrastructure Debt Funds Take-Out Financing Take-Out Financing through ECB Route
BANK FINANCING & OWN FUNDS Own Funds Term Loans – Rupee and Foreign Currency Soft loans Deferred payment guarantee Syndicated loans IRB infrastructure
Total amount – Rs. 3177 Cr. Equity – Rs. 863 Cr. Debt – Rs. 1756 Cr. Cost of debt- 11.75% Consortium lead by IDBI
IIFCL Sectors eligible Cumulative gross sanctions of over Rs. 63,800 crore under direct
lending to more than 360 projects Financing instruments & schemes
Direct lending Takeout finance Credit enhancement scheme Refinance scheme
IFC’S
ELIGIBILITY OR ENTRY POINT NORMS FOR REGISTRATION
A minimum of 75 per cent of the total assets of an IFC-NBFC should be deployed in infrastructure loans.
The company should have minimum net-worth of Rs. 300 crore.
The minimum credit rating of the company should be at 'A' or equivalent of CRISIL,CARE, ICRA or equivalent rating by any other accrediting rating agencies.
Sr. No. Category Infrastructure sub-sectors
1. Transport
i. Roads and bridges ii. Ports
iii. Inland Waterways iv. Airport
2. Energy
i. Electricity Generation ii. Electricity Transmission iii. Electricity Distribution
iv. Oil pipelines
3. Water & Sanitation
i. Solid Waste Management ii. Water supply pipelines iii. Water treatment plants
iv. Irrigation (dams, channels, embankments etc.)
4. Communication i. Telecommunication (Fixed network) ii. Telecommunication towers
“Infrastructure loan” means a credit facility extended by NBFCs to a borrower for exposure in the following infrastructure sub-sectors:
FOREIGN DIRECT INVESTMENTPROCEDURE FOR RECEIVING FDI
Automatic Route
Government Route
GOVERNMENT INITIATIVES TO ENCOURAGE FDI IN INFRASTRUCTURE
100 percent FDI is allowed under automatic route for infrastructure development in power sector.
FDI of 100% is permitted under automatic route in infrastructure related to petroleum products, natural gas pipelines and petroleum refining by private sector.
100 percent FDI is permitted under automatic route in setting up new and established industrial park.
Single window clearance mechanism for issue and review of clearance associated with important projects under the Cabinet secretary.
TAKE OUT FINANCING
Meaning
Eligibility
Institutions that can engage in such practices
Problems with takeout financing
TAKE OUT FINANCING APPROVED THROUGH ECB ROUTE
Eligible Borrowers : Sea ports , roads including bridges and power sectors for the development of new projects
Conditions
Tripartite Agreement : The Buyer , The Banker & The Builder Maturity- 7 Years The fee payable, if any, to the overseas lender until the take-out shall
not exceed 100 bps per annum. Domestic banks / Financial Institutions will not be permitted to
guarantee the take-out finance. The domestic bank will not be allowed to carry any obligation on its
balance sheet after the occurrence of the take-out event. ECB should not be raised from overseas branches / subsidiaries of
Indian banks.
INFRASTRUCTURE BONDS Floated for infrastructure projects
Benefits the investor and the country
Expected returns
Tax benefits
Conditions
Subscriber
Minimum investment
Lock-In period
Eg. - State-owned IDBI Bank raised Rs. 1,000 crore from bonds on Feb 9, 2016 to fund infrastructure projects.
IDBI Omni Infrastructure Bonds 2015-16 Series III are unsecured, non-convertible redeemable bonds.
The 10-year bonds will have coupon rate of 8.80 %
INFRASTRUCTURE DEBT FUNDS
Mechanism
Regulators
Tax Benefits
Shareholding pattern
Member %
ICICI 31
Bank of Baroda 30
Citi Bank 29
LIC 10
Total 100
First Infra-Debt Fund of India
BORROWING CAPACITY ESTIMATION
Suppose the project company would like to know how much debt can be raised for the project which is expected to generate $ 200 million in the first year of operation. This revenue is expected to grow at an annual rate of 6% per annum and period of operation is around 15 years. Similarly, in the first year of operation, the expected expenses has been estimated to be around $34 million and this expense is expected to grow at the rate of 4% per annum. The project will be placed in the income tax bracket of 40% and non-cash expenses deductible for tax purposes each year is estimated to be around $2 million. The targeted coverage ratio is 1.50 and the interest rate on debt is 10%.
Substituting the values in the equation, the present value of the net revenue is
PV = $1278.85 million - $ 193.42 million + $ 6.08 million
PV = $ 1091.52 million
Thus, the maximum amount of loan that can be raised is $ 727.68 million.
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