Very few infrastructure projects going around for lenders: IIFCL chairman

The pipeline for PPP is completely dry, says Sanjeev Kaushik in a Q&A

With banks in a spot due to past lending in core sector and slowed private investment, large-scale infrastructure building is yet to pick up. In an interview with Jyoti Mukul, Sanjeev Kaushik, chairman and managing director, India Infrastructure Finance Company Ltd, makes a pitch for hedging subvention to borrow overseas. Edited Excerpts:

Is there enough demand for financing infrastructure sector considering that mostly it is the government which is investing and not the private sector?

It is true that even if financing is available, not much bandwidth is available with the private sector. Companies are banking on government funding. The problem has been in the last three to five years, there has been a slowdown in PPP. Our pipeline for PPP is currently dry. We are seeing some activity in renewable energy and in hybrid annuity road projects. Other than that there is hardly any demand for loan. Hopefully, this slowdown will bottom out. 

Currently, there is hardly any private investment going into greenfield projects. In the existing projects, there is activity like companies forming INVITs and selling out their equity. There is also takeout financing happening.

Has the slow pace impacted your lending portfolio?

In terms of both number of projects and the loan amount, we are seeing a downward revision. They are very few infrastructure sectors that are going around and they are going to the same set of lenders. There is so much capital chasing few projects that sometimes projects which would normally not find resources, get funded. The overall project cost has also come down. Yet there is not enough appetite for large projects. Ticket size has come down. There is no lending in thermal sector which is in trouble. There are big hydro projects that are there but are embroiled in problems. There is no activity in hydro power. We are seeing activity in renewable because of Prime Minister Narendra Modi’s push, but we are cautiously moving on solar and the wind because we do not want a lot of aggressive bidding and low tariffs. Lenders have to see their own interest. At the railway side, there are station redevelopment projects. On highways, we have seen some 20-22 hybrid annuity projects, where we are lenders. Because of our developmental role, we support new government schemes. We have our financiers to around 4,000 Mw of renewable capacity.

Issues concerning stalled projects have been resolved to a large extent by the government. We are in the much better position of risk mitigation than we were earlier.

What are the issues which need to be resolved for infrastructure financing?

Traditionally, most of the infrastructure financing have been done by public sector banks or institutions like IDFC which no more do it or domestic financial institutions which have long been transformed into banks. PSU banks today are facing a crisis of capital and they are facing their own constraints as far as exposure to the infrastructure sector is concerned. In effect, there is hardly any financing available for long-term infrastructure sector in the country. Clearly, that gap has to be met by somebody since the country requires as much $1.2 trillion of infrastructure financing and if we assume 50 per cent of that comes from public private partnership, then clearly, more than $500 billion has to come from both equity and debt. You are looking at $300-400 billion of term loans that have to come. If public sector banks are not able to provide funds to that extent, then there is large scope of other sources. IIFCL is best placed for this.

The government is looking at pension and sovereign funds through NIIF. Will this mechanism work?

There are foreign investors, like private equity and pension funds, they will come into existing projects. For greenfield funding, it is institutions like IIFCL, that will come. The landscape has changed. Whether or not there is requirement of projects in PPP mode or not, scope for institutions like IIFCL remains huge. IIFCL should have been much larger than what it is today. It definitely looks at the growth opportunity.

The government has formed NIIF but the intention is more of equity investment than debt. They will leverage projects for investment by foreign lenders. It is a good initiative but equity investors will require 17-18 per cent internal rate of return but infrastructure projects do not give that kind of return. Unless, there is government guaranteed bond through NIIF or otherwise, and there is 9.5-10 per cent returns, so debt providers will also not like to flock.

With bank resources limited, how can overseas funding be tapped further?

The government needs to look at ways to facilitate low cost funds from overseas for institutions like us. We can become a low cost provider of funds say if are able to tap dollar or Formosa bond markets. But despite low cost loans overseas, the reason that landed cost remains high is because of hedging and we have to pay a guarantee commission to the government which is 1.2 per cent. It becomes cheaper for me to borrow in the domestic market than borrow abroad. It shuts out the whole pool of long-term capital providers from global sources. One way of handling this is to set up interest subvention for hedging or an IIFCL UK kind of institution which can be used for raising these resources.