Infrastructure companies are likely to target bond offers following the success of 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.

No need for equity

In this mode, the government need not provide equity for small infrastructure projects such as 100 km road stretch and is better off by 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.

Continuous process

Diversification of the infrastructure market with easy entry and exit barriers for different type 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 stated.

Bangalore Metro Rail Corporation is one such project where both 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 multi-lateral debt from Japan International Cooperation Agency and Agences Francaise de Developpement. The state government is proving cash support arrangement for debt servicing.

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