Civic sense: municipalities join hands to draw investors

Municipal corporations, which find it nearly impossible to approach the capital markets on their individual strength, are forming a loose consortium in a bid to attract investors.

Helping them in the effort are merchant bankers, who will play a market maker's role.

The first effort of this kind has kicked off in  Karnataka where six municipal corporations joined hands to project a single balance sheet.

The Karnataka Urban Infrastructure Corporation (KUIC) is acting as the nodal agency that will structure civic projects and ensure their bankability.

It proposes to go for a structured borrowing programme to raise Rs 100 crore for at least 15 years. KUIC is undertaking sewage pipe projects for six municipalities, which has been appraised and structured by the external agencies under the USAID FIRE project.

"Once municipal corporation projects are properly structured, they can stand on their own based on cash flows. Funding is not an issue and can take place by way of bonds or take-out finance, with an escrow account and a credit enhancement mechanism in place," said Centrum Finance Ltd managing director R Krishnamurthy.

Centrum is in the forefront of developing the structure for these projects. Aside from Karnataka, it is also in talks with Madhya Pradesh, Gujarat, Uttaranchal and Jharkhand.

Civic projects normally are funded through state government guarantees.

"Today with the help of merchant bankers, these projects can be made bankable on their own strength. This will be the future of infrastructure development at the grassroots level," Krishnamurthy feels.

With the government pushing for infrastructure funding especially at the grassroots level, merchant bankers have a new role to play working more closely with state governments to make civic projects more bankable.

"We are structuring the projects whereby it will appeal to commercial lenders," said Krishnamurthy. Centrum has already spoken to a number of commercial banks, which have shown interest to lend towards these projects.

"Governments are poor appraisers and monitors of projects. The role of merchant bankers will now be that of handholding whereby projects can stand on their own merit," said Krishnamurthy.

Merchant bankers in their new avataar are helping local bodies, which have no clue how to get projects going and are blindly going to the government for guarantees.