Infrastructure companies are likely to target bond offers following the successful issue of corporate bonds by public sector infrastructure companies.

According to India Ratings & Research, these bonds facilitate infrastructure developers to raise funds at a lower cost than bank financing. The Government’s (sovereign and states) equity participation in infrastructure projects along with guarantees are supporting companies in raising bonds.

In this mode, the Government need not provide equity for small infrastructure projects such as a 100-km road stretch and is better off providing viability gap funding to the concessionaire. However, equity contribution from the Government is a ‘statutory’ requirement for strategic infrastructure projects such as metro rails.

These infrastructure projects involve a long gestation period and need long-term funds for execution. Sovereign participation eases access to funds from multilateral agencies. Low-cost loans with a long repayment period reduce stress on projects and, thus, user charges, increasing usage of the services offered by these projects.

Diversification of the infrastructure market with easy entry and exit barriers for different types of investors such as shareholders, bankers and bond holders is a continuous process and results cannot be achieved overnight. The broadening of the debt market has begun with infrastructure players issuing corporate bonds at low interest rates, the rating firm said.

Bangalore Metro Rail Corporation Ltd is one such project where both the Central and state Governments have infused equity and provided sub-debt and it was also required to raise bonds from the market. Sovereign support is available for long-term multilateral debt from the Japan International Co-operation Agency and Agences Francaise de Developement. The State government is providing cash support arrangement for timely debt servicing.

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