Infrastructure Financing

- Power

- Roads / Bridges
- Telecom
- Airports / Ports
- Urban Infrastructure / Muncipal Capacity Building
- Water supply schemes / Transport terminals
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Infrastructure Financing

Large Capital Investments

Long Gestation period
Long break even period
Risks :
Commercial / Construction / Operating / Regulatory /
Political / Funding

Management of Infra projects on the basis of :

BOT
BOOT
BOO
BOLT

Issues determining bankability

Funding Structure
Special purpose vehicle
Relationship between sponsor and O&M company
Analysis of revenue streams ( tolling / Annuity )
Project management and implementation arrangements
Security structure ( Cash flow / asset based / state
Government support / Escrow / LCs )
Concession Agreements
Tax concessions / Holiday
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Financing of Infra projects

Financing in the form of Loans / NCDs with high D/E.
Securitisation by pooling of revenue streams and sale of
such streams and will depend upon variability of revenue
streams. It is an off balance sheet financing
Special status tax free bonds
Credit rating mandatory for bonds
Cost comparable to Loans if cost of negative carry is
included
Mismatch of loan tenors with concession period
Take out financing : Conditional / unconditional
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Power Sector
-Zero import duty for all mega power projects in excess of 1000
mw. EPGC allowable for captive units.
- PPA with Transcom / Discoms for sale and FSA as a CP for
debt disbursement.
-Electricity act allows open acceses protocol
-Fuel cost should act as Pass through .
-Regulatory commissions to determine power tariff and PLF on
Merit order despatch & grid wheeling and evacuation charges.
- Merchant Power plants Spot sale basis or long term PPAs
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-Non-recourse financing of power generation projects involves a

mismatch between loan tenors (normally around 10 years) and revenue
flow from the project which extends over 20 to 30 years. The large
component of debt that needs to be repaid in the first one-third or half
of the project results in significantly high tariff levels to start with .

-Financing partners would typically be Major equipment suppliers,

Fuel suppliers ,transmission & distribution companies and developers.
-Large infrastructural funds/ pension funds
-Bankability of over sector in doubt due to significant losses and
subsidies.
-Mechanism of roll over of debt / Take out financing. Non recourse
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financing to SPVs.

Model Concession Agreement

Financial Structure of the Project

Leverage
Fixed or floating interest rate
Door to Door tenure of debt
Currency of debt
Tolling , Annuity, Revenue share structures.
Sliding scale royalties
Regulated & un regulated charges dual tail.
SPV Structure
Generally unsecured.
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Appropriate Return on Equity

Risk Return Trade-off
Project Sponsor's portfolio of projects
Problems
No comparables
Impact of guarantees
Guarantees for ensuring continuity
Guarantees for ensuring shareholder returns

Cost of Financing / Dividend IRR

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Risks Profile
Project Life Cycle - Main Risks:
----------- Construction----------------------------------Operation---------------------

Main Risks:
Completion risk
Cost Overrun risk
Performance risk
Environmental risk

Main Risks:

Political/ Regulatory risk

Off-take risk (Power Projects)
Market Risk (Toll roads)
FSA defaults.
Technological obsolecense risk (Telecom )

Common Risks: Foreign Exchange Risk

Interest Rate Risk

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Role of Concessionary in Project Risk

Mitigation Process

Equity participation
Subsidies
Sovereign guarantees
Guarantees of performance by contracting
authority
Guarantee against adverse acts of Government
Tax and customs benefit
Protection from competition
Ancillary revenue sources
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BOOT Structure
Typical structure to finance a limited life concession on a
limited recourse basis
Project SPV holds the concession
SPV raises limited recourse debt.

Debt is fully repaid out of concession revenues

At the expiration of the concession,all assets of the SPV
are transferred back to the Government free of charge
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Typical BOT Structure

Project Company
Govt.
Agency
Project Company
Operator

O&M
Contract

Concession
Project Company
Project
Company

Project Company
EPC
Contractor

Project Company
SubContractors

(Undertakings)

Equity

Project Company
Sponsors

Undertakings
(Comfort Letter)

Loan
Agreements
Project Company
Lenders

Construction
Contract

Tariff

Trust
Deed

Project Company
Public
Users
Project Company
Security
Trustee

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