Financial Daily from THE HINDU group of publications
Friday, Oct 10, 2003
Financial Daily from THE HINDU group of publications Friday, Oct 10, 2003 |
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Money & Banking
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Credit Market Industry & Economy - Infrastructure Project finance: Investors are still playing safe Poornima Mohandas
Mumbai , Oct. 9 EVEN as there are few projects and fewer financiers, the project finance market in India is undergoing a sea change. Debt equity ratios are being watched more closely and new concepts such as `sell down of assets' are gaining flavour. Disbursements mostly pertain to the infrastructure sector and there seems to be little demand from the manufacturing sector, agree lenders. In the manufacturing sector there seems to be a problem of excess capacities and there are no projects in the pipeline either for at least the next six months, said Mr S.C. Bhargava, Chief (Investment), Life Insurance Corporation. The behemoth, Life Insurance Corporation, which typically likes to hold on to these long duration assets till maturity disbursed Rs 10,000 crore in the last fiscal through project finance and has a disbursement target of Rs 12,000 crore for this fiscal on a conservative note. While most of these projects are NHAI-led projects from the private sector and pertain to roads, ports and bridges there have also been some disbursements in the power, telecom, cement and steel sectors. LIC has recently made sanctions of Rs 7,000 crore to National Thermal Power Corporation and of Rs 6,000 crore to National Hydro-electric Power Corporation both to be disbursed over a three-year period. The project finance market in India is in a state of flux as there is dearth of development financial institutions, which can take large exposures. In the 1990's, the consortium of IDBI, IFCI and ICICI had reigned supreme but that is no longer the case with two of them ridden with non-performing loans and the third now converted into a universal bank. Banks such as State Bank of India, ICICI Bank, Bank of Baroda, Canara Bank are showing interest in project finance market but most are keen only to take small exposures pragmatic after having burnt their fingers in projects such as the Rs 6,200-crore Dabhol Power project which has been lying shut since May 2001. Take the case of the largest bank in the country. State Bank of India has a target of a mere Rs 1,000 crore for its project financing initiative for this fiscal. Meanwhile, ICICI Bank is keen to specialise in the origination of loans to later sell it down at a premium. "We want to capitalise on our skills to appraise projects and to trade in securitised paper. We also wish to take only small to medium exposures to avoid concentration," said Mr S. Mukherji, Executive Director, ICICI Bank. With the dismantling of the consortium model and senior executive meetings, the promoter often has to negotiate with each bank separately leading to delay in achieving financial closure. Typically time taken after completion of appraisal to financial closure now takes six months, which was considerably shorter at 1-2 months in the previous decade. The lenders are also concerned about debt equity ratios and insist on promoters bringing in equity so that they have a stake in the project. Now the ratio hovers at 4:1 for the infrastructure sector and 1:1 in several other projects. This is opposed to the situation in the 1990's when the ratio used to go even as high as 15, explained an official in LIC.
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