Road developers welcome move on IIFCL

October 29, 2013

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MAMUNI DAS

Road developers welcomed the Finance Ministry’s move to permit India Infrastructure Finance Corporation Ltd (IIFCL) to become the sole lender even at a pre-bid stage, but said the exact impact will be known only after the finer details emerge.

“The very fact that IIFCL can become the sole lender is a good decision. One of the key points is the project developer would not have to go to multiple banks. Right now, for projects valued at Rs 3,000 crore or so, project developers have to go to 12-15 banks as there are exposure limits of Rs 200-250 crore for each firm, except if you go through State Bank of India,” K. Ramchand, IL&FS Transportation Networks Ltd, told Business Line.

“IIFCL becoming involved at a pre-bid level is good. If it gets involved with the project sponsor, such as NHAI for road projects and Port Trusts for port projects, then there will be a layer of banker’s assessment of a project, even before the project goes out for bid. This is likely to solve the current problem of gaps between bankers’ assessment of a project and NHAI’s assessment,” said an NHAI official.

“When can IIFCL become a sole lender? If it can become a sole lender, anytime after the early stage, while this is good for developers, the fear would still be that IIFCL may be stuck with relatively bad projects,” Virendra Mhaiskar, Chairman and Managing Director, IRB Infrastructure Developers, told Business Line.

K.C. Chakrabarty, RBI Deputy Governor, in a paper had said “I would rather wish that entities such as infrastructure debt funds, IIFCL, which are set up to provide take-out financing, should assume initial credit risk in such projects and then sell the same to banks.”

In the context of long gestation projects, financiers of infrastructure projects need to pay a lot of attention to the project at the nascent stage. Having assumed the risk till projects come on stream and start generating revenue, it was natural for a bank to be unwilling to trade a good credit risk to fund another greenfield project, he said in the paper.

Source-http://www.thehindubusinessline.com