Even as the economic slowdown continues to impact otherwise resilient operational road projects, infrastructure debt funds are gathering momentum given the potential of investment in the sector, experts say.
“There is a huge potential for investment in the infrastructure projects and we have seen interests from both global as well as domestic investors. Though there is a slowdown currently, the market will pick up in the coming months,” Il&FS Financial Services Managing Director and Chief Executive Officer Ramesh Bawa told the news agency.
Il&FS has so far raised Rs 1,500 crore infrastructure debt fund and plans to increase the total corpus to $ 5 billion in the next two years. Along with Il&FS, ICICI Bank, IDFC, India Infrastructure Finance Company (IIFCl) and IDBI have also floated infrastructure debt funds.
“Many firms have already entered into the market for providing funds to infrastructure projects, primarily the road projects as we are seeing huge investor interest not only from the domestic but also from global players like overseas pension funds as well as provident funds,” India Ratings associate director (infra and project finance) Chintan lakhani said.
As per the RBI mandate, infrastructure debt funds can invest in roads projects only after one year of commencement of operations. “The delay in execution of projects or the economic slowdown is unlikely to impact the investor sentiment as they invest one year after the commencement of commercial operations of the road project,” ICRA Assistant Vice President Shubham Jain said.
He said there are nearly 150 national highway projects operational where these funds can be invested and which are long-term in nature. Infrastructure projects have a long gestation period forwhich they require sustainable and low cost long-term financing. The lenders, which are mostly banks, do not have such type of risk appetite for long-term projects like insurers and pension funds do.
“These debt funds can take over bank loans as the lenders have a limited appetite to take on the risk of asset-liability mismatch because of long term infra funding,” Jain said. A number of projects have been delayed or stuck due to want of approvals like land acquisition and environment clearances, among others.
Due to this trend, developers are also not ready to take up projects as there is no guarantee of completion and banks on the other hand are unwilling to finance projects, until all the approvals are in place. Government has, therefore, decided to take up large road and transport projects on engineering, procurement and construction (EPC) basis.
To revive interest of private sector towards road projects, government has also taken steps like rescheduling of premium for some stressed projects, easing of exit norms for developers in case of national highway projects, proposing changes in Model Concession document and enhancing security to the lenders.
“These initiatives are expected to help in reviving many stuck projects by way of extending liquidity support to developers,” Jain said. Several projects which were bid aggressively or have witnessed significant revision in project costs, are likely to be scrapped and fresh bids would need to be invited.
“The combined effect of these measures could result in improving liquidity, freeing up capital for stressed developers, filtering out financially weaker entities at the pre-bid stage and stuck projects coming up for re-award,” he added.