India Infrastructure Finance Company Ltd (IIFCL), a government-owned infrastructure lender, plans to scale up its innovative financing solutions such as take-out finance, credit enhancement and subordinate debt as part of its efforts to help put in place a new financial architecture for infrastructure financing in the country, a top official said.

“We need to now look at infrastructure financing involving long-term amortisation period. There has to be new financial architecture which involves a kind of relay race and the baton keeps on passing from a set of banks to another set of lenders. The kind of innovative solutions IIFCL has introduced for infrastructure financing will help build a new financing architecture.

“It should not matter as to how many banks are relaying the entire infrastructure asset during the term structure. We should see how infrastructure projects can derive the long-term benefit of financial assistance,” PR Jaishankar, Managing Director, IIFCL, told BusinessLine .

There has to be a long term refinancing facility by either getting the bond markets and other infrastructure lenders to split themselves across the phases of the term structure, he said.

Covid blues

On the Covid-19 impact on infrastructure projects, Jaishankar said that the pipeline of projects has been quite tepid in the last five months, but things could look up once the pandemic subsides. There is no need to be pessimistic about the outlook given that the government is already doing the heavy lifting on infrastructure and the national infrastructure pipeline with projected investment of ₹111-lakh crore between 2020 and 2025 is expected to boost development, he said.

‘Need a sustainable option’

Jaishankar, who assumed charge at the helm of IIFCL in May, felt that banks should involve themselves up to the construction of projects, post which bond markets or other infrastructure lenders should be relied upon for supporting the financing needs of the project through solutions such as take-out finance and credit enhancement.

“Going forward, we need to look at refinance as a sustainable option for standard projects with no overdues. Refinancing today is subject to regulatory provisions. If the schedule of loans gets changed, the project may get downgraded leading to higher level of provisioning. That could lead to be regarded as restructuring as well which may not enthuse infrastructure lenders to take it up in more mainstream way. We have to adjust our financing to suit the sourcing of funds. Market is in a scenario where sourcing of funds is skewed towards the lower end of yield curve,” he said.

Take-out financing

Under take-out financing, loans made by banks to infrastructure firms are sold to IIFCL so that banks recover their much needed funds ahead of the payment schedule under the loan agreement.

On the other hand, through credit enhancement, a lender is provided reassurance that a borrower will honour the obligation through additional collateral or third party guarantee. It reduces the credit/default risk of a debt, thereby enhancing credit rating and lowering interest rates on the debt.

As of end March, the cumulative (gross) sanctions under take-out finance stood at ₹24,393 crore and cumulative disbursements stood at ₹15,423 crore.

Under Credit Enhancement Scheme, IIFCL has sanctioned projects with a cumulative proposed bond issue of upto ₹8,380 crore and proposed IIFCL guarantee of ₹2,256 crore till March 2020. IIFCL today has cumulative sanctions of ₹1.38-lakh crore under direct lending, refinance, take-out finance and credit enhancement.