INFRASTRUCTURE FINANCING

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 INFRASTRUCTURE FINANCING

• Power

• Roads / Bridges

• Telecom

• Airports / Ports

• Urban Infrastructure / Municipal Capacity Building

• Water supply schemes / Transport terminals

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 INFRASTRUCTURE FINANCING

• Large Capital Investments

• Long Gestation period
• Long break even period

• Risks :
Commercial / Construction / Operating / Regulatory /
Political / Funding

• Management of Infra projects on the basis of :

a. BOT
b. BOOT
c. BOO
d. BOLT
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 ISSUES DETERMINING BANKABILITY

• Funding Structure
• Special purpose vehicle
• Relationship between sponsor and O&M company
• Analysis of revenue streams ( Tolling / Annuity )
• Project management and implementation arrangements
• Security structure ( Cash flow / asset based / state
Government support / Escrow / LC’s )
• Concession Agreements
• Tax concessions / Holiday

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 FINANCING OF INFRA PROJECTS

• Financing in the form of Loans / NCD’s with high D/E.

• Securitisation by pooling of revenue streams and sale of such
streams and will depend upon variability of revenue streams.
It is an off balance sheet financing
• Viability gap Financing
• Credit rating mandatory for bonds
• Cost comparable to Loans if cost of negative carry is
included
• Mismatch of loan tenors with concession period
• Take out financing : Conditional / unconditional
• Fiscal incentives – Tax ( Direct & indirect)
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• Non-recourse financing of Infrastructure projects involves a
mismatch between loan tenors (normally around 10 years)
and revenue flow from the project which extends over 20 to
30 years. The large component of debt that needs to be repaid
in the first one-third or half of the project results in
significantly high tariff levels to start with .
• Strategic users of the infrastructure (Subject to no conflict)
• Large infrastructural funds/ pension funds
• Mechanism of roll over of debt / Non recourse financing to
SPV’s.

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FINANCIAL STRUCTURE OF THE PROJECT

• Concession Agreement
• Leverage
• Fixed or floating interest rate
• Door to Door tenure of debt
• Currency of debt
• Tolling , Annuity, Revenue share structures.
• Sliding scale royalties
• Regulated & un regulated charges – dual tail.
• SPV Structure
• Generally unsecured.
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 APPROPRIATE RETURN ON EQUITY

• Risk Return Trade-off

• Project Sponsor's portfolio of projects
• Problems
1. No comparables
2. Impact of guarantees
a. Guarantees for ensuring continuity
b. Guarantees for ensuring shareholder returns
• Cost of Financing / Dividend IRR

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 RISKS PROFILE

Project Life Cycle - Main Risks:

----------- Construction-----------------------------Operation------------------

Main Risks: Main Risks:

•Completion risk •Political/ Regulatory risk

•Cost Overrun risk
•Performance risk
•Environmental risk
•Off-take risk (Power Projects)
•Market Risk (Toll roads)
•FSA defaults
•Technological obsolecense risk
(Telecom )

Common Risks: 1) Foreign Exchange Risk

2) Interest Rate Risk
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 ROLE OF CONCESSIONARY IN PROJECT
RISK MITIGATION PROCESS

• Equity participation
• Subsidies
• Sovereign guarantees
• Guarantees of performance by contracting authority
• Guarantee against adverse acts of Government
• Tax and customs benefit
• Protection from competition
• Ancillary revenue sources+
• Viability Gap Financing
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 BOOT STRUCTURE

• Typical structure to finance a limited life concession on a

limited recourse basis
• Project SPV holds the concession
• SPV raises limited recourse debt.
• Debt is fully repaid out of concession revenues
• At the expiration of the concession, all assets of the SPV
are transferred back to the Government free of charge.

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 TYPICAL BOT STRUCTURE

Project Company
Govt. (Undertakings)
Agency

Project Company
Operator O&M Equity Project Company
Sponsors Undertakings
Contract Concession (Comfort Letter)

Project Company
Project Loan
Company Agreements
Project Company
EPC Project Company
Lenders
Contractor Construction
Contract Tariff Trust
Deed
Project Company
Public Users
Project Company
Sub- Project Company
Security
Contractors
Trustee

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