The Hindu Business Line : Long-term funding for infrastructure projects

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Long-term funding for infrastructure projects — SBI working on take-out deals

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IDBI expressed concern over defaults by State government entities in meeting their payment obligations, failure to finalise escrow mechanisms for power sector and moves to rewrite power purchase agreements.

Bangalore , Sept. 15

BANKS and financial institutions (FI) have intensified efforts to rope in more lenders for making available long-term funds for infrastructure projects.

Speaking at a FICCI conference on banking, Mr C. Bhattacharya, Managing Director of the SBI, said: "Financial structures can be created for making available long-term funds." Such structures involve creating back- to-back take-out arrangements or allowing borrowers the option of early refinance or prepayment at the time of maturity.

He said SBI hoped to finalise a take-out arrangement with at least two financial institutions shortly. One of these institutions was understood to be Life Insurance Corporation of India. LIC is currently the only institution in a position to lend funds for tenures in excess of 15 years.

Institutions such as Infrastructure Development Finance Company (IDFC) had also entered to arrangements with banks for taking out some of the infrastructure sector loans to avert asset-liability mismatches.

However, Mr A.K.T. Chari, Chief Operating Officer, IDFC, said: "Most banks preferred to retain the assets in view of the high deposit growth." Besides, he added, most of the banks were also unwilling to part with the high yielding assets in a soft interest rate regime.

However, financial institutions such as IDBI made it clear that some of the recent moves by state governments triggered concerns. Among the major worries were the defaults by State government entities in meeting their payment obligations, failure to finalise escrow mechanisms for power sector and moves to rewrite power purchase agreements.

Mr A.K. Doda, Executive Director of IDBI, said: "Past agreements should be honoured and PPAs must be respected."

Mr Doda who later spoke to reporters said, infrastructure lending-led asset stress would not impact IDBI or any of the bank's transition to the Basel II.

He said: "These risks can be managed easily and innovative structures created."

He also said Dabhol would also not affect any of IDBI or any of the banking sector despite the large amount involved. FIs are in the process of negotiating a deal for buying out offshore lenders' exposures equivalent to $300 million at a discount. "I don't see them as real issues impacting the transition to the new capital accord," he added.

However, he said, that for lending to power projects, while escrow was not an issue, lenders would look for models that could secure their cash flows.

This included charges on distribution companies' revenue stream or the three tier payment security mechanisms as in the case of Andhra model.

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