ROADS SECTOR TO GET A LEG-UP AS INFRA DEBT FUNDS GAIN TRACTION
“We have seen interests from both global as well as domestic investor that is why there is a huge potential for investment in the infrastructure projects. Although we have seen a downfall recently but the market will be in pace in the coming months, “said by IL&FS Financial Services Managing Director and Chief Executive Officer Ramesh Bawa .
So far IL&FS has raised Rs 1,500 crore infrastructure debt funds and plans to increase the total amount to $ 5 billion in the next two years. Along with IL&FS, ICICI Bank, IDFC, India Infrastructure Finance Company (IIFCL) and IDBI have also drifted infrastructure debt funds.
As stated by India Ratings associate director (infra and project finance) Chintan Lakhani “As we are considering huge investor interest not only from the domestic but also from global players like overseas pension funds as well as provident funds many firms have started entering into market for providing funds to infrastructure projects, primarily the road projects”.
As stated by RBI mandate, infrastructure debt funds can endow in roads projects only after one year of initiation of operations. ICRA Assistant Vice President Shubham Jain said “It has been seen that there is a delay in start of projects or the economic slowdown is improbable to impact the investor response as they invest one year after the initiation of commercial operations of the road project.”
He stated approximately 150 national highway projects are in operation and we can invest these funds which are long-term in nature. There are infrastructure projects which have a long development period for which they require sustainable and low cost long-term financing. Financial supporter like Banks do not have such type type of risk craving for long-term projects as done by insurers and pension funds.
Jain said “As the lenders can take low risk of asset-liability mismatch so these debt funds can take over bank loans because of long term infra funding”. Due to lack in approvals number of projects gets delayed or stucked like land acquisition and environment clearances.
As there is no guarantee of completion and banks on the other hand are reluctant to finance projects, until all approvals are in place, developers are also not ready to take up projects. Therefore, government has decided to take up large road and transport projects on engineering, procurement and construction (EPC) basis.
Government has also taken steps like rescheduling of premium for some high end projects, easing of exit norms for developers in case of national highway projects, proposing changes in Model Concession document and enhancing security to the lenders, to renew interest of private sector towards road projects.
Jain further added, “By way of enhancing liquidity support to developers many stucked projects have been renewed “. Some proposals on the projects were assertive or have witnessed significant amendment in project costs are likely to be scrapped and fresh bids would need to be invited.
Furthermore he added “The mutual effect of these measures could result in improved liquidity, freeing up capital for stressed developers, filtering out financially weaker entities at the pre-bid stage and stuck projects coming up for re-award.”
Source: Daily Pioneer
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