BANGALORE METRO RAIL CORPORATION

LIMITED

ADB-BMRCL Catalyzing a Non-sovereign

long-term loan for infrastructure projects
UA Vasanth Rao
General Manager (Finance)
Bangalore Metro Rail Corporation, Bangalore

The entity
Bangalore

Metro Rail Corporation Limited

(BMRCL), a public sector jointly owned (50:50) by
the central and state governments.

Structured as a Special Purpose Vehicle for the

implementation of Bangalore Metro Rail Project.
GOI approved on 11th May 2006 followed by MOU
between GOI-GOK-BMRCL dated on
24th
December 2010.

Financing Plan
Sl. No. Particulars

GOI

GOK

Equity

15%

15%

30%

Sub-Debt

10%

17%

27%

Sub-total

25%

30%

57%

Senior term
debt
Grand total

43%
100%

Government sanctioned completion cost Rs.11609 Crores

BMRCL approach
While Delhi metro is fully funded by government
equity and JICA sovereign- guaranteed debt, GOKBMRCL decided to create a new financing model for

the project which would be a mix of

a. government equity, (30%)
b. government subordinated debt,(27%)
c. and Pass Through Assistance form JICA, (25%)

and leverage these sources to raise the balance of 18 %

as commercial debt from financial institutions.

The Challenge:
Structuring a non-sovereign long-term MDB loans with
interest below market rates.
With no legal hurdles for MDB to lend directly to an
entity wholly owned by the Government
To structured a credit enhancement mechanism between
respective Government entities and borrower (BMRCL)
for payment mechanism
Support of GOI and GOK in the construction of the
repayment arrangements.

Legality: The threshold issue

Can a foreign entity directly lend to a Company
(BMRCL) fully owned by the government ?
The

Constitution of India - Article 293

(Borrowing by States) bars lending by a foreign
entity directly to State Governments.

Could BMRCL - owned and largely funded by the

state government be seen as the State itself and
therefore barred from borrowing from a foreign
lender such as ADB ?

BMRCL: A Company under Companies Act:

Views of DEA-GOK-ADB: BMRCL is a company created under the

Indian Companies Act 1956 and should be regarded as different entity

from the state government like any other State run companies

Gujarat Petrochemicals Company (GSPL), Tamil Nadu Print Ltd, and

Sardar Sarovar Nardama Ltd, which are controlled, majority owned and
funded by state governments

They have received approvals for external commercial borrowings from

Reserve Bank of India which confirms that foreign loans had been
taken and repaid by state government owned companies.

Attorney General of India confirmed in writing that the an entity like

BMRCL, registered under the Companies Act 1956 is different from the
State Government and is not barred from borrowing from a foreign
lender.

Due diligence
While the threshold issues were being
discussed and brought to logical conclusions,
ADB mission had undertaken due diligence

exercise of the project including the social and

environment al studies.

Security Arrangements:
All security would be equally shared on pari passu
among the lenders in the payment waterfall under the
TRA into which all Project revenues will flow.

Hypothecation and mortgage of assets of BMRCL will

be with the Security Trustee created for the purpose.
Inter creditor Agreement between the lenders is being

finalized on which basis a Security Account to be opened

at an acceptable Bank in Bangalore under a Security
Trustee Agreement.
ADB Facility Agreement contains terms and conditions
that are customary in project financing transactions

Additional Security feature devised for

foreign lender
As per the MOU, if BMRCL was not able to
maintain the debt service ratio, then GOK to step in
with additional sub-debt.
While this condition would satisfy domestic

lenders, appreciating that foreign loans would

require a different comfort mechanism, GOKBMRCL working closely with ADB designed
additional security/guarantee in the form of
Concession Support Agreement.

Concession Support Agreement with GOK & BMRCL

GOK to enter into a Concession Support Agreement with

BMRCL which reiterates its support mentioned in the MOU and

in addition contain the support to BMRCL by a Shadow Cash
Support Payment mechanism.
BMRCL to open and maintain a separate Shadow Cash Support

Account (SCS Account) in INR for the duration of the ADB loan
term.
GOK pay BMRCL quarterly Shadow Fee payments as a top up

for BMRCLs cash flow for a quarter.

The Shadow Fee is calculated to ensure that the projected

quarters cash flow of BMRCL allows BMRCL a 1:00 debt

service coverage ratio (i.e all operating expenses and all debt
servicing obligations of BMRCL are covered.)

Mechanics of the fund flow to SCS A/c:

At the start of each year, BMRCL will provide a Annual Shadow
Cash Support Projection and income which calculates among
others:
1.

the Projected Annual Shadow Cash Support Amount applicable

to such Year and the Projected Quarterly Shadow Cash Support
Amount applicable to each Quarter of such Year.

2.

Based on these projections BMRCL will intimate GOK the

amount of the Initial Shadow Cash Support Amount.

3.

GOK will deposit in the SCS Account an amount equal to the

Initial Shadow Cash Support Amount. If, for any reason the
projected Annual Shadow Cash Support Amount is or will be
either insufficient or greater than required, BMRCL shall inform
GOK seeking a revised Annual Shadow Cash Support Projection

Mechanics of the fund flow to SCS A/c: (cont)

4.

For each of the subsequent quarter, BMRCL will intimate GOK

any shortfall in the Shadow Cash Support Account, in which
event GOK will deposit in the SCS Account an amount equal to
the Shortfall Shadow Cash Support Amount.

5.

During any Quarter in any Year, BMRCL will be entitled to

make a withdrawal from time to time on an as need basis
from the SCS Account for the purpose of making Payments;
provided and to the extent that such withdrawal will not cause
the balance the SCS Account to fall below the Minimum
Balance.

4.

All Shadow Cash Support Amounts funded by GOK to

BMRCL shall be contributed as Subordinated Shareholder
Loans.

GOI Support letter to ADB

A support letter to be issued by GOI to ADB confirming the
arrangements contained in the MoU between GOI-GOK-BMRCL
and brief states that:
1.

BMRCL may enter into the ADB Facility Agreement

2.

To permit creation of first priority charge for GOI (JICA) and the
Senior Lenders on a pari passu basis, over the escrow account(s)
established by BMRCL into which all revenues earned by the Project
are to be transferred;

3.

That BMRCL may create a first priority charge solely for the benefit
of ADB over the SCS Account and the Security Account.

The Final Product

Having regard to these understandings the Facility

agreement was signed on 27th March 2012 at New Delhi

which provides $250 Million loan for 18 year tenure.
This loan structuring is clearly ABDs Value Added

Product for any private sector lending. It took 4 years in

the making with legal solution provided by DEA and ADB.
The final product is a path breaking structure and should

catalyze MDB and private sector lending to raise larger

resources to meet the financing needs of this critical sector
without recourse to Central and State Budget, but rely on
their support and commitment to the project.

Thank you