(Infrastructure Finance Update is a monthly feature by CFA on the infrastructure sector with focus on financing. The feature is based on the monitoring of trends in infrastructure space through news reports, media coverage, etc.)

This month in the Infrastructure Finance Update, several measures have been reported by the government to boost the infrastructure sector. It is working on a strategy to give a fresh lease of life to development finance institutions (DFIs) for funding infrastructure projects as rising non-performing assets in the banking sector — which dominated infrastructure funding — limits their heft and threatens to spoil ambitious infrastructure-building plans. As a first step, it has indicated its intent to modify India Infrastructure Finance Co Ltd (IIFCL) into a DFI by increasing its equity capital by ₹15,000 crore. This is to create requisite headroom for borrowing such that IIFCL can finance big infrastructure projects. The government has also sanctioned funds in the budget for capitalisation of the National Investment and Infrastructure Fund (NIIF) to build up the capacity of banking and financial institutions to provide long-term infrastructure finance.

The Finance Ministry is preparing a cabinet note to seek approval for a ₹6,000 crore equity infusion into two subsidiaries of the National Infrastructure Investment Fund (NIIF). The amount will be part of the ₹22,000 crore equity support promised for NIIF in Union budget 2020-21. The quasi-sovereign wealth fund will leverage this equity to raise funds for a ₹1 trillion national infrastructure pipeline (NIP).

The Road Transport, Highways and MSME minister has said the government is making efforts to attract FDI in infrastructure sector to address liquidity crunch faced by the COVID-19-hit economy. He also said that talks are on with various pension funds, insurance funds and financial institutions. The government is encouraging projects on engineering, procurement and construction (EPC), Hybrid Annuity Model (HAM) and other modes as the present condition of Indian contractors is not comfortable for BOT (build, operate and transfer) projects.

The minister has also launched 45 highway projects worth over Rs 11,000 crore. All these road projects are expected to enhance connectivity and provide convenience and economic growth across the state. With these projects, the movement of goods and people to and from Madhya Pradesh will also improve substantially especially with the neighbouring states of Uttar Pradesh, Rajasthan, and Chhattisgarh.

IRB Infrastructure Developers has emerged as preferred bidder for a concession to build, operate and transfer the Gandeva-Ena road HAM project in Gujarat, India. The project cost is Rs17.55 billion ($234.7 million). IRB Infrastructure will build the 27.5km 8-lane greenfield project. Construction is due take 2 years to be followed by 15 years of operations and maintenance. HAM procurement is a type of PPP, where the public sector pays a substantial portion of the construction costs in settled milestones during the construction period, with the balance of payments and maintenance payments made over the remainder of the concession. For this project NHAI will bear 40% of the project bid cost during construction.

State-run NHAI has formed a special purpose vehicle — DME Development — for financing, construction and operation of the Delhi-Mumbai ‘Greenfield’ Expressway. NHAI’s wholly-owned SPV is aimed at diversifying the developer’s “resource base and developing a sustainable and self-liquidating approach to raise finances”. Currently, the NHAI is implementing about 28,000 km of highways under ‘Bharatmala Pariyojna’ Phase-1, and the Delhi-Mumbai Expressway is one of the flagship corridors.

Asian Infrastructure Investment Bank (AIIB) has appraised a $50 million loan to Ayana Ananthapuramu Solar (AASPL) and aims to approve it by Q3 2020. Ayana Renewable Power (ARPPL) is the project sponsor. AASPL is the special purpose vehicle of the 250MW solar energy project in Andhra Pradesh.

AIIB is also looking to provide loans worth USD 3 billion for various large infrastructure projects, including Delhi and Meerut Rapid Rail, Mumbai Metro Rail and Chennai Peripheral Ring Road project, over 12 months. India is the largest borrower, accounting for 25 per cent of total lending by AIIB so far.

Asian Development Bank has approved a USD 1 billion (about ₹7,485 crore) loan to support the construction of high-speed Delhi-Meerut regional rapid transit system.[1]

New World Bank report Infrastructure in Asia, presents data about infrastructure provision in three key sectors: road transport, electricity, and water and sanitation. The report is a stock-taking of levels of supply, quality, and affordability of infrastructure services, underscores the need to better understand current levels of service delivery to facilitate governments’ infrastructure planning and financing.

A fund managed by UK-based emerging markets investor Actis has acquired 400MW of solar assets in India. Actis bought 350MW solar plants in Andhra Pradesh and a 250MW asset in Madhya Pradesh at Rewa Solar Park. The buyer is the $1.23 billion Actis Long Life Infrastructure Fund (ALLIF). The 15-year closed-ended equity fund has a 30% allocation to Asia. The seller is ACME Solar Holdings with a transaction value of nearly Rs23 billion ($306.8 million).

Actis Llp is also in talks with ReNew Power to acquire more than 500MW of green energy projects for an enterprise value of around ₹3,000 crore. This potential sale of 550 MW capacity would be the largest such deal in India’s clean energy space after the covid-19 outbreak. These comprise a 300MW solar project at Pavagada Solar Park in Tumkur district of Karnataka and a 250MW wind farm in Gujarat.

Tata Power and Vena Energy have emerged as the lowest bidders in a 700MW solar auction held by electric utility Gujarat Urja Vikas Nigam (GUVNL) for the Dholera Solar Park in Gujarat, India, both quoting tariffs of Rs2.68 ($0.04) per kWh.

Power transmission firm Sterlite Power Grid Ventures Pvt Ltd sold almost its entire stake in India Grid Trust (IndiGrid), the infrastructure investment trust it had initially sponsored, for Rs. 850 crore ($114.8 million). Sterlite Power sold about 85.51 million IndiGrid units at Rs. 98 apiece. A major part of the proceeds will be utilised to repay L&T Infrastructure Finance, IndiGrid’s lender which released the pledged units. Buyers included engineering company Larsen & Toubro Ltd; and foreign funds Societe Generale, Morgan Stanley Asia Singapore and Danske Invest India, a fund managed by Aberdeen Asset Managers. These entities cumulatively bought shares worth Rs. 405.77 crore.

The Prime Minister has launched a financing facility of Rs. 1 lakh crore under the Agriculture Infrastructure Fund. PM also released the sixth installment of funds of Rs. 17,000 crore to 8.5 crore farmers under the PM-KISAN scheme to create better storage, modern cold storage chain in villages and many employment opportunities will be created in the village.

According to some views, the idea to boost infrastructure for economic recovery sounds good on paper but in reality, infrastructure funding space has become a hornet’s nest that no one wants to touch. In the prevailing circumstances, lockdown and the economic downturn has dealt a serious blow to infrastructure sector in the country. Banks’ apprehension to lend has brought the cycle virtually to stand still. They are staring at high rate of potential default and loan restructuring due to the deteriorated business sentiments. It is difficult to convince them to restart lending to the infrastructure projects in the current conditions. Private players’ interest has also waned off from infrastructure. Further, delays in clearing dues and prolonged project completion cycles have also created disillusionment.

On the other hand, public sector players like NHAI are already high on debt due. NHAI’s debt servicing cost had shot up from Rs. 9,532 crore in FY18 to Rs. 19,000 crore in FY20. Funding is going to be difficult even for central and state governments due to the revenue shortfall and low lending cycle. As proposed solution, there is the possibility of setting up development finance institutions (DFIs) as mentioned above. The proposed DFIs could tap banks, financial markets, and global investors. The committee is also mulling other options like Asset recycling, InvITs and toll-operate-transfer models to raise funds.

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