5/14/2014

1
Linking Cities With Domestic Markets:
The Tamil Nadu Experience
Rajivan Krishnaswamy
Manila, 13-14 May 2014
Outline
I. Context: Nation, State, City
II. Capital and Policies: TNUDF
III. Performance
IV. Assessment and Lessons
5/14/2014
2
I. Context: Nation, State, City
Nation:
INDIA
State:
TAMIL NADU
A federal democracy
Rule based fiscal transfers from Centre to State (in contrast
with State to City)
Rapidly urbanizing urban share 32% (2011 census)
Urbanized 53.9% population in towns (2011 Census)
60% of urban population live in Class I Towns & 15% in
the single metropolitan city of Chennai
Urban poor constitute about 30% of this population
Urban Quality of Life
Water supplies vary from 50 lpcd in Town Panchayats to 74 lpcd in
Corporations, significantly below the norm of 70 lpcd for Town
Panchayats and 110 lpcd for Corporations.
Only 57% of population in Corporation areas, 32% in Municipalities
and 16% in Town Panchayats have access to treated sanitation
Although 70% of solid waste generated is collected, most local
bodies do not have organized disposal facilities
Less than 50% of the roads are provided with storm water drains
5/14/2014
3
Municipal Finance: Key facts
Municipals subsistence level
institutions, headed by bureaucrats
dependant on state for capital grants,
usually tied
Majority of the debt from State
raised on guarantees
Debt passed on to municipals but
projects executed by parastatals
huge defaults INR 5000 million had
to be written off
Pre- and Post- 1996
For eight years (1988-96) a Municipal
Fund (MUDF) located in govt lent to
munis based on principles of open
access and clear lending criteria (INR
2000 m, high repayment rates)
In 1996 Govt introduced major
reforms: rational devolution, elections
MUDF restructured to a corporate
entity, TNUDF, in partnership with
three major FIs to lend and raise
resources for municipal infrastructure
Outline
I. Context: Nation, State, City
II. Capital and Policies: TNUDF
III. Performance
IV. Assessment and Lessons
5/14/2014
4
II. Capital Structure and Policies
TNUDF
Registered as a Trust under the Indian Trust Act
GoTN and 3 All India Financial Institutions ICICI.
HDFC, and IL & FS (initially 65% GoTN, 35% FIs)
Managed by an Asset Management Company
under the Indian Companies Act on basis of
Performance Contract
Complementary Grant Fund fully owned by GOTN
Fund Objectives
Finance urban infrastructure with focus on environmental;
Facilitate private sector participation in infrastructure
through joint venture and public-private partnerships;
Raise domestic finance for municipal investments
Work with a Complementary Government owned Grant
Fund that finances project development
5/14/2014
5
Eligible borrowers / sectors
Eligible borrowers: municipalities, statutory boards,
public sector undertakings and private corporate
Eligible sectors: water supply, sanitation, solid waste
management, roads and drains, energy efficiency
Lending policies and procedures
Eligible items for TNUDF funding
Only for capital expenditure
Civil works
Services
Goods / Materials
TNUDF will not fund
Land acquisition costs
O&M expenditure
5/14/2014
6
Eligibility Criteria
For ULBs etc.
TE / TR < 1
Annuity / Total revenue < 30%
For private sector borrowers
Long term debt < 1.5
Net worth
Net fixed assets > 1.5
Long term debt
Average DSCR > 1.5
Security and Provisioning
Special recovery mechanism such as escrow accounts of
property tax, water charges etc.
Provisioning policies based on Central Bank guidelines for
Non Bank Financial Institutions
Annual loan balance confirmations with municipalities
5/14/2014
7
Outline
I. Context: Nation, State, City
II. Capital and Policies: TNUDF
III. Performance
IV. Assessment and Lessons
III. Performance
Lending and Resources
Profitable with high (100%) ULB
loan repayment till date
Raised nearly US$ 140 million in
private finance
Focus on financial sustainability,
entity based appraisals and
escrow as securities
o Transactions: municipal PPPs, first pooled bond issue, capital
contributions from beneficiaries, sewerage DBOTs, etc.
o TNUDP-III (US $ 300 million) focused on sewerage compared to roads
in TNUDP-II (US 60 million)
Solid Waste
Management
Sewerage &
Sanitation
Water Supply
Bus Stations &
Markets
Roads, Bridges,
SWD & Others
Over 380 sub-projects with US$ 500 million in lending
5/14/2014
8
Systemic access to market finance for
small and medium cities
Umbrella Credit
Enhancements
Sov.Grant
Sov. Govt.
Transfer
Payments
MLA
WSPF
Reserve
Account
Revenue
Intercept
Partial Credit Guarantee
Technical Assistance
Investors
Bonds
Trustee
Local
Govt.
Project
Local
Govt.
Project
Local
Govt.
Project
Funds
Market Rate
Long term
Principal & Interest payments
If necessary
If necessary
The terms of issue
Mode : Private Placement Issue
Issuer : Water and Sanitation Pooled Fund (WSPF) a trust, which
pools infrastructure needs of 14 small cities
Issue Size : Rs. 30.41 Crores USD 10 million approx
Coupon : 9.20% p.a.
Tenor : 15 years (With a put and call option at the end of 10th years)
Redemption : In 15 equal annual instalments
Payment of Interest : Annual payment of coupon on a diminishing balance
method.
Security : Unsecured Issue

The Pooled Bond
5/14/2014
9
The Cities and the investments
Y
LIST OF POOLED PROJECTS
Rs. In 100,000
S.No. Particulars
Project
Cost
Loan amt
sanctioned
Loan
disbursed

Water Supply Schemes:
1 Ambattur Municipality 336.56 67.32 67.32
2 Tambaram Municipality 182.00 109.20 109.20
3 Madhavaram Municipality 325.00 195.00 105.75
4 Rajapalayam Municipality 85.00 51.00 51.00
Adjacent Urban Areas - AUA
5 (I) Alandur Municipality 427.00 403.00 403.00
6 (ii) Pammal Municipality 378.00 357.00 357.00
7 (iii) Ankapathur Town Panchayat 188.00 178.00 178.00
8 (iv) Ullagaram Town Panchayat 298.00 281.00 281.00
9 (v) Porur Town Panchayat 579.00 547.00 547.00
10 (vi) Maduravoyal Town Panchayat 146.00 138.00 138.00
11 (vii) Valsaravakkam Town Panchayat 189.00 179.00 179.00
12 (viii) Meenambakkam Town Panchayat 17.00 16.00 16.00

Under Ground Drainage:
13 Madurai Corporation 1407.00 500.00 325.00
4557.56 3021.52 2757.27

The Investors
Sl. No. Subscribers No. of
Bonds
allotted
1. Karnataka Bank Ltd. 2000
2. ICICI Bank Ltd. 1000
3. Gujarat Industries Power Co.,
Ltd, Provident Fund Trust
11
4. Metlife India Employees
Provident Fund Trust
5
5. City Union Bank Ltd., 25
Water and sanitation pooled fund
5/14/2014
10
WSPF bonds have created an active secondary market
Bonds sold by original holders mainly to private pension funds
Beginnings of a new market
1. The Karnataka Bank Ltd
2. The Tata Engineering And Locomotive Company Ltd Superannuation Fund
3. The Tata Engineering And Locomotive Company Ltd Provident Fund
4. Credit Capital Investment Trust Company Ltd Trustees Taurus Mutual Fund
A/C Libra Bond Fund
5. The Tata Engineering And Locomotive Co. Ltd Employees Pension Fund
6. The Baghat Urban Co Operative Bank Limited
7. The Indian Hotels Co. Ltd Employees Provident Fund
8. Trust Capital Services (India) Pvt. Ltd.
9. Digital Globalsoft Limited Provident Fund Trust
10. Staff Provident Fund of Nicholas Piramal India Ltd
11. City Union Bank Limited - Mount Branch
12. Gujarat Industries Power Co. Ltd. Provident Fund Trust
13. Metlife India Employees Provident Fund Trust
14. Advanta India Management Staff Provident Fund
Outline
I. Context: Nation, State, City
II. Capital and Policies: TNUDF
III. Performance
IV. Assessment and Lessons
5/14/2014
11
IV. Assessment and Lessons
Enabling Factors
Eight years (1988-96) of successful credit
history, - lending based on municipal financial
operating plans
Accompanied by major reforms transferring
authority to municipalities and backed by
statutory devolutions
15 years of partnering with WB, allowing gradual
blending of longer term finance with domestic
sources financing systems rather than projects
Lessons and an Agenda?
Stable revenue streams hence work on demand side
to strengthen Fiscal Transfers IGFR in South
Africa, Green Light in Columbia
Strong Intermediation hence work on supply side
Debt Markets, Intermediation...PCG in
Joburg, Tamilnadu
In S Asia LLDF, TDF, KUDIFC etc., EA MDFO, DFV, LADF
Partnerships with Multilaterals Finance systems
rather than projects?
5/14/2014
12
THANK YOU FOR LISTENING
ALL QUESTIONS AND COMMENTS WELCOME
rajivan.k@gmail.com