No takers for road, port projects.
With the India Infrastructure Finance Company Ltd's refinance facility (IIFCL) failing to find takers since its launch early this year, the government plans to extend it to railways and power projects.
In the first stimulus package announced in December last, the government had allowed IIFCL to raise Rs 10,000 crore through tax-free bonds by March 2009 to support private partnership projects in highways and ports. The caveat was that IIFCL could only refinance projects approved after January 31, 2009. The money is currently lying idle with the state-run lender because it cannot find proposals for refinancing projects approved after this date.
IIFCL refinances up to 60 per cent of the loan given by banks for public private partnership projects. The National Highway Authority of India (NHAI) alone has since January 31, 2009 awarded 13 national highway projects costing Rs 13,317 crore but none of them have come up for refinancing since there is lag of around six months between the project award and refinancing. Besides, the pace of award of contracts has also been slow so far.
The government had earlier expected disbursals from the facility to start by September this year. However, general elections and the slowdown resulted in a lack of interest from bidders. “We are now positively considering the proposal to extend the facility to the railways and the power sector for funding ultra mega power projects. An announcement will be made in a fortnight,” a finance ministry official told Business Standard.
However, the government has not found merit in another demand of the industry and IIFCL to relax the January 31 deadline and consider projects approved before this cut-off date. “We will not change the date unless there is strong justification for doing so. Bank lending to infrastructure has been growing and to our notice there are no major issues in infrastructure financing. It takes three or four months for financial closure and then companies have to tie up for equity and debt. So disbursals from the refinancing facility will pick up by early next year,” the official added.
Also Read
IIFCL refinance is available for 7.85 per cent. Banks are allowed to charge not more than 2.50 per cent over and above the IIFCL rate. A senior executive with a leading public sector bank said the borrower would get the loan at around 10.5 per cent through this refinance facility, whereas banks charge 11.5 to 12 per cent.
IIFCL resources used for refinance can leverage bank financing of double the amount — Rs 20,000 crore in this case.
The refinance facility was launched so that IIFCL could provide long-term finance to the infrastructure sector, especially at a time when the country was facing the impact of the global slowdown. The government allowed IIFCL to raise another Rs 30,000 crore through tax-free bonds in the current financial year. This, however, can be raised only after disbursal of the earlier funds.
The infrastructure sector is estimated to need $500 billion investment in the next five years. But there is a mismatch in the loan period requirements of infrastructure companies and the duration for which banks can lend. Infrastructure projects require long-term funds of 10 to 20 years, but banks do not have access to funds for such long durations since most of their deposits are for less than five years.