With the cost of infrastructure projects on the rise due to higher interest rates, domestic infrastructure companies have started approaching multilateral financial institutions like the Asian Development Bank (ADB), International Finance Corporation (IFC) and DEG, one of the largest development financial institutions in Europe, for funding their projects.
Soma Enterprises, which is undertaking couple of highway projects on the build, operate and transfer (BOT) basis, has successfully negotiated a loan of Rs 500 crore from ADB for the 291-km Panipat-Jalandhar highway project, costing over Rs 4,500 crore.
Soma Enterprises Director Ankideedu Maganti said, “Apart from the domestic banks, we are also in discussions with some of these multilateral financial institutions for funding our future projects.”
“Though there are no concrete proposals at present, we are still trying to find out the procedures for taking loans from ADB for funding our Machilipatnam minor port development project in Andhra Pradesh,” Nagarjuna Construction Company Director AN Raju said. The Rs 1,200 crore Machilipatnam port project will be implemented through the BOT model. The contract has been won by a consortium of Nagarjuna Construction Company, Maytas Infrastructure and Srei Infrastructure.
Currently, the interest rate charged by domestic banks for any infrastructure project in India is in the range of 13 per cent-16 per cent. At this rate of interest, infrastructure companies are finding many of the planned projects on the BOT model unviable. Compared to this, builders can access credit from multilateral financial institutions like ADB and IFC at rates which are cheaper by 2-2.5 per cent, according to industry experts.
“ADB’s strategy under its private sector window is to support projects in the infrastructure and financial sectors that are catalytic and demonstrational in nature. During 2008, ADB approved assistance worth $997.6 million (approximately Rs 4,500 crore) for projects in the private sector. These projects are in the power generation, renewable energy, healthcare, rural telecom, housing mortgage guarantee and financing sectors,” said an ADB spokesperson.
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ADB recently held a business opportunities meet at various places, including Delhi, Mumbai and Kolkata, to create awareness among the infrastructure developers about its lending through the private sector window.
Industry experts said that with the capital market no longer looking attractive and the credit market experiencing a liquidity squeeze, the role of these multilateral financial institutions has become more important as a major source of liquidity.
Kotak Investment Banking executive director and head (infrastructure group) Sanjay Sethi said: “Financial institutions like ADB, IFC and DEG are least affected by the ongoing financial market crisis and are flush with funds. So the role of these institutions as a means of liquidity for the planned infrastructure projects is very important. We are already seeing various infrastructure developers approaching these institutions for funds.”