IIFCL can be ‘sole lender’ in infrastructure projects

In what could be a huge relief for infrastructure developers, the state-owned India Infrastructure Finance Company Ltd (IIFCL) has been allowed to take up the role of ‘sole lender’ for infrastructure projects even after the exit of other banks funding such projects.

The relief to project developers will come in terms of longer repayment obligations, Harsh Kumar Bhanwala, officiating Chairman and Managing Director of IIFCL, told Business Line here.

This approval has come after the IIFCL Board recommended this facility to boost infrastructure financing in the country.

The IIFCL Board will, on Tuesday, take note of the Government’s approval and start implementation, Bhanwala said.

This would help in project financing for longer duration – for most part of the concession period – and thereby provide comfort to developers as regards availability of long-term funds to projects.

Till now, IIFCL could lend to infrastructure projects only as part of a lenders’ consortium that included banks.

Typically banks lend for a timeframe of eight to nine years, although infrastructure projects often require funding for longer periods running into 20 or 25 years.

Banks find it difficult to lend for longer-term due to asset liability mismatch issues, since their funds, with the exception of equity capital, are typically sourced for much shorter periods. “We will be part of consortium so long as it exists. After that IIFCL as sole lender can offer longer repayment period (to the developer) beyond the term of the initial consortium,” Bhanwala said.

HOW THIS WILL WORK

So far, if a concession agreement for an infrastructure project is valid for say 20 years, the initial lender consortium provides funds only for say eight years, after which a new consortium is usually brought into the picture.

Now, IIFCL can financially support the project as a sole lender (after eight years) for most part of the remaining years even after the others in the consortium have exited.

IIFCL has mobilised long-term resources – say for 20 years – and is therefore better placed to lend long-term as compared to the banks, it was pointed out.

The other limitation with banks is that most of them have reached the ceiling norms for lending to certain infrastructure sectors. They are hence finding it difficult to lend more.

IIFCL’s takeout finance scheme is expected to come to the aid of such banks.

PRE-BID STAGE

Bhanwala said that IIFCL will offer this facility of being the sole lender to projects even at the pre-bid stage so long as certain financial parameters are met.

IIFCL will provide this comfort to the statutory authorities like the National Highways Authority of India who in turn can pass this information to the bidders.

This facility could help bring down the overall project cost and result in lower viability gap funding from Government in certain cases, he said.

All these benefits could even be passed on to reduce user charges.

> srivats.kr@thehindu.co.in

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