K K JINDAL

ROLE OF IIFCL IN

INFRASTRUCTURAL

FINANCING

WHAT IS INFRASTRUCTURAL FINANCING?

There is a need for large and continuing amounts of investment in almost all areas of infrastructure in India.

This includes transportation (roads, ports, railways, and airports),energy (generation and transmission), communications (cable, television, fiber, mobile and satellite) and agriculture (irrigation, processing and warehousing).

The key issue is, while the need exists, how will these projects get financed.

INFRASTRUCTURAL FINANCING

CHARACTERISTICS OF INFRASTRUCTURAL FINANCING

Longer Maturity

Larger Amounts

Higher Risk

Fixed and Low (but positive) Real Returns

FINANCING INFRASTRUCTURE IN 11TH FIVE YEAR PLAN

INFRASTRUCTURE FINANCING REQUIRED IN 2010-11 AND 2011-12

ROLE OF IIFCL IIFCL was incorporated on 5 January 2006

under the Companies Act 1956 as a wholly government-owned company.

IIFCL is an apex financial intermediary for purposes of the development and financing of infrastructure projects and facilities in the country. IIFCL renders financial assistance through:

(i) Direct lending to eligible projects(ii) Refinance to banks and financing institutions

(FIs) for loans with a tenor of 5years or more(iii) Any other method approved by the

Government of India (GOI)

IIFCL is adopting a focused approach by addressing projects from the following sectors.

(i) Roads & bridges, railways, seaports, airports, inland waterways, other transportation projects

(ii) Power (iii) Urban transport, water supply, sewerage, solid

waste management, and other physical infrastructure in urban areas

(iv) Gas pipelines (v) Infrastructure projects in special economic zones (vi) International convention centers, other tourism-

related infrastructure (vii) Infrastructure projects in Special Economic

Zones (viii) Other infrastructure projects, as may be

determined from time to time

IIFCL AND ITS MODE OF FINANCING

Subordinate debt: It is expected to help PPP infrastructure projects to achieve faster financial closure.

Refinance to Banks: IIFCL to refinance upto 80% of the long term infrastructure loans disbursed by banks.

IIFCL AND ITS MODE OF FINANCING

Scheme for financing viable infrastructure projects through India Infrastructure Finance Company Limited (IIFCL)

Empowered Committee

IIFCL

Lead Bank

Long Term Debt

Private Sector Company

Project Company

Project TermPublic Private Partnership

(PPP) ProjectPublic Sector Company

Total Project Cost

FUNDING OF IIFCL UNDER THE SCHEME Apart from its equity, the IIFCL ussually funded

through long-term debt raised from the open market.  This debt can be any or all of the following:

[a] Rupee debt raised from the market through suitable instruments created for the purpose; the IIFCL would ordinarily raise debt of maturity of 10 years and beyond.

[b] Debt from bilateral or multilateral institutions such as the World Bank and Asian Development Bank.

[c] Foreign currency debt, including through external commercial borrowings raised with prior approval of the Government.

FUNDING OF IIFC continue…. The IIFCL raise funds as and when required, for on

lending, in consultation with the Department of Economic Affairs.

 The borrowings of IIFCL is guaranteed by the Government of India.

The guarantee fee payable by the IIFCL is 0.25% per annum on outstanding balances

The facility of guarantees including the terms for guarantee will be reviewed after 5 years, and its continuation shall be subject to the outcome of the review.

IIFC may raise funds from domestic institutions namely, banks, FIs etc.

PROJECT FINANCE BY IIFC The IIFCL finance only commercially viable

projects.  The project shall be implemented (i.e. developed,

financed and operated for the Project Term) by:

[i] A Public Sector Company

[ii] A Private Sector Company selected under a PPP initiative; or

[iii] A Private Sector Company

Provided that the SPV shall assign overriding priority to Private Public Partnership projects that are implemented by Private Sector Companies selected through a competitive bidding process.

PROJECT FINANCE BY IIFC conti… Provided that in case of Railway projects that are

not amendable to operation by a Private Sector Company, the Empowered Committee may relax the eligibility criterion relating to operation by such company.

Only such projects which are implemented through a Project Company set up on a non-recourse basis shall be eligible for financing by IIFCL.

In the event that the IIFCL needs any clarification regarding eligibility of a project, it may refer the case to the Empowered Committee for appropriate directions.

APPRAISAL & MONITORING BY LEAD BANK The Lead Bank shall present its appraisal of the

project for the consideration of the IIFCL

The IIFCL will not normally be required to carry out any independent appraisal of the project.

 The Lead Bank shall be responsible for regular monitoring and periodic evaluation of compliance of the project with agreed milestones and performance levels, particularly for purpose of disbursement of IIFCL funds.  It shall send periodic progress reports in such form and at such times, as may be prescribed by IIFCL.

LENDING TERMS  The Project Company will have the right

to choose any of the modes of lending given above. 

The total lending by the IIFCL to any Project Company does not exceed 20% of the Total Project cost

 The rate of interest charged by IIFCL is such as to cover all funding costs including administrative costs and guarantee fee, if any.

The IIFCL will release funds to the Lead Bank as and when due

LENDING TERMS Recovery of loans advanced by IIFCL shall be the

responsibility of the Lead Bank. The charge on project assets shall be pari passu with

project debt (other than subordinate debt) and will continue beyond the tenure of project debt (other than subordinate debt) till such time the amounts lent by IIFCL, together with interest and other charges thereon remain outstanding.

 The IIFCL, the Lead Bank and the Project Company shall enter into a Tripartite Agreement for the purposes of this scheme

 The first two years of operation of the Scheme, projects meeting the eligibility criteria could be funded on a first-come, first served basis. 

 LENDING TO PPP PROJECTS

 In case of PPP projects, the private Sector Company shall be selected through a transparent and open competitive bidding process.

PPP projects based on standardized/model documents duly approved by the respective government would be preferred

Prior to inviting offers through a open competitive bid, the concerned government or statutory entity may seek ‘in principle’ approval of the IIFCL for financial assistance under the Scheme

TAKE OUT FINANCING SCHEME FORMED BY IIFC

TAKE OUT FINANCE: Infrastructure projects may need financing arrangements in

which the project can be financed initially on the basis of shorter-term debt (such as credit from suppliers to finance equipment purchase) that is refinanced later by longer-term debt. A specialized institution could help guarantee such refinancing within a predetermined financing cost. This amounts to giving the project an assurance that if refinancing is not available on specified terms when needed, it will either be provided directly by the institution or the difference between the predetermined cost of financing and the cost at which funds can be raised will be reimbursed to the project. A commercial fee should, of course, be charged for this service

OBJECTIVE OF TAKEOUT FINANCE

To expand sources of finance for infrastructure

projects by facilitating participation of new

entitiesTo address sectoral

/group/entity exposure issues and asset liability mismatch concerns of

lenders

To boost the availability of longer tenor debt finance

for projects

FEATURE OF TAKE OUT FINANCE SCHEME In case of Take-out Financing, IIFCL direct lending to the

project does not exceed 10% of the project cost and total lending including Takeout Financing by IIFCL shall not exceed 30% of total project cost.

On the Scheduled Date of Occurrence of Takeout, the takeout will be executed in respect of only those loans, which are classified as standard assets in the books of the Lenders who have signed the Takeout Agreement.

On the Scheduled Date of Occurrence of Takeout, the takeout will be executed if the project has achieved an average Debt Service Coverage Ratio (1 year of operation) of at least 1.10.

Once takeout is effected pursuant to the Takeout Agreement, IIFCL’s security interest in the project’s assets and cash flows shall rank pari passu with senior debt extended by the Lender(s).

CREDIT ENHANCEMENT SCHEME

CUMMULATIVE SECTOR WISE LOAN APPROVAL

IIFCL is the SPV created. In keeping with the Budget announcement, the company would render financial assistance through-

– Direct lending to eligible projects – Refinance to banks and financial institutions (FIs) for loans with tenor of five

years or more – Any other method approved by GOI The other salient features of infrastructure funding through the company are:

! Loan assistance from SPV shall not exceed 20 per cent of project cost.

! A project awarded to a private sector company for development, financing, construction through PPP shall have overriding priority under the scheme.

! Private sector companies will not be eligible for direct lending and only the refinancing option will be available in such cases. Further, the total lending to such projects will be kept within 20 per cent of the lending programme of the IIFCL.

! The rate of interest charged by IIFCL shall be such as to cover all fund costs including guarantee fee as well as administrative cost.

IIFCL is expected to be a very lean organization which would keep overheads to the minimum and thus keep the cost of funds for infrastructure at a competitive level. The company would fill the gap for long term infrastructure finance which the banks are not in a position to address owing to concerns relating to mismatches in assets and liabilities

ANY QUESTIONS??????????