GMR in talks with IIFCL for takeout finance

Bangalore-headquartered infrastructure company GMR Infrastructure is planning to avail takeout financing facility from IIFCL (India Infrastructure Finance Company Ltd) for around Rs 100 crore of debt for two of its road projects.

Takeout financing is a method of providing finance for longer duration infrastructure projects of 15-20 years by mixing short-term funding sources with long-term funding requirements. Usually, the first five years of the loan is provided by the bank and for the balance years the loan is sold to government-owned institutions like IDFC or IIFCL which can raise long-term resources from the market. This move is expected to ease pressure on interest rates and will reduce the interest outgo for these projects.

“We are in talks with IIFCL for availing take out financing for around Rs 100 crore for two of our road projects in which the total debt stands at Rs 600 crore. Though the debt amount is small, it will reduce the company’s interest cost,” sources in the know said.

This kind of financing is introduced to protect commercial banks from asset-liability mis-match arising due to long-term lending.

In the meantime, the move will help decrease the interest cost for GMR with an increase in its operating margin in road projects. According to industry experts, though the operating margin in a road project is over 80 per cent, the interest cost of 50 per cent drags the overall margin levels.

GMR Infra has a net debt of Rs 14,600 crore with a debt-equity ratio of 1.26 by March, 2011. The total interest outgo in the last fiscal was Rs 1,076 crore for the company.

In the highways sector, the infra firm has narrowed its losses by 26 per cent to Rs 38 crore in the last financial year. However, it has posted a profit of Rs 1 crore in the fourth quarter of last fiscal in this segment. GMR posted a loss of Rs 929.64 crore in the last financial year compared with a profit of Rs 158.4 crore in the corresponding period in the previous year.

Revenue rose by 26 per cent to Rs 5,773.8 crore during this period.