Financial institutions have jointly decided to bridge the gap in the funding requirements of large scale project created by the inability of the promoters to bring in their contribution due to the dull conditions in the equity markets.
Financial institutions are considering funding the equity gap of Mangalore Refinery and Petrochemicals Ltd, Neelanchan Ispat, Onark Metcoke, Jindal Vijaynagar and Indo Gulf Fertilisers.
Some funds have already been advanced to these projects as loans and can turn into NPAs if the project implementation gets delayed due to lack of equity funding. A greenfield project with a time overrun of 50 per cent is classified as an NPA.
Hence, financial institutes have jointly decided to fund the shortfall of equity portion for those projects that are stuck due to unavailability of equity funding, said senior FI sources.
For instance, if a project with a cost of Rs 1,000 crore has a debt component of Rs 600 crore and the balance is the equity component. If the promoters have managed to raise only Rs 200 crore while the other Rs 200 crore is stalled due to the lull in capital market, the FIs will not disburse the entire debt portion unless the equity portion is pumped in.
By giving equity funding, the FI would also be bailing out those companies that are unable to reach financial closure due to shortfall in equity funding. Following the lull in the capital market, several corporates are unable to meet the debt - equity ratio and their projects are stuck.
"The shortfall in the equity support will be provided after due diligence and only to those corporates whose projects are already on stream," said G P Gupta, chairman and managing director of IDBI. "IDBI has taken up the exercise of either picking equity or will arrange equity funding for them," he added. Besides the funding will be in the form of fully convertible debentures.
"At present, the FI and banks are willing to provide the debt portion of a project but since the promoters are unable to arrange the equity portion, the projects is stranded," said market sources.
A start is already made towards this. For instance, Indo Gulf Fertilizer placed Rs 100 of preference with IDBI, ICICI and UTI recently, instead of raising equity in the market Indo Gulf was planning to raise Rs 350 crore through a public issue between March - September 1998 but later decided to shunt the plan due to bad capital market condition. The balance will also be raised through presence issues.
A similar case follows for Manglore Refinery and Petrochemicals Ltd which had planned to raise Rs 650 crore of equity through domestic and international funding. However, the idea is stalled and FIs in association with the company are working on picking the equity portion in form of FCD.
The FIs are actively considering equity support to Neelanchan Ispat which is of Rs 300 crore onark Metcoke of Rs 70 crore and Jindal Vijaynagar.
