Infrastructure Finance - Conference Key takeaways.: Anand Rathi

Visit http://indiaer.blogspot.com/ for complete details �� ��

Infrastructure Finance - Conference on infrastructure finance - Key takeaways.



Infrastructure Finance
Conference on infrastructure finance – Key takeaways
At the conference hosted by Indian Infra magazine/Power Line
on ‘Road ahead for infrastructure finance’, panellists/speakers
indicated that massive investment planned for infrastructure in
India in the XII five year plan (FYP) is likely to result in debtfunding
gap. Key reasons are higher dependence on bank funds,
poor credit ratings, low infra debt investments by
insurance/pension funds and external sources. To counter these,
regulatory/structural changes for tapping long-term household
savings and external borrowings would be required.



 Huge investment outlay. Infra investments projected for the
XII FYP are +US$1trn (9-10% of GDP), which is twice those
targeted for the XI FYP (~7.5% of GDP). Private investments in
the XII FYP are estimated at 50% vs. 31% in the XI FYP – i.e.,
3.2x those targeted for the XI FYP.


 Limited debt resources. The panellists were of the view that the
total funding gap will be ~22-30% for the XII FYP. Arranging
debt for this gap will be a key challenge going forward. Private
debt funding gap (requirement vs. availability) is estimated at
US$80bn in the XII FYP.
 Equity requirement likely to be met. Equity commitments for
projects are likely to be met through various sources such as
private equity investments, venture capital and IPO. Equity
investors are currently sitting on cash, awaiting better projects at
reasonable valuation.


 Regulatory and structural issues for financing. Infrastructure
debt finance is largely confined to banks (~50%), which are
constrained by sectoral caps/exposure norms and asset-liability
mismatch. Also, an underdeveloped bond market, poor credit
ratings of infra projects (lower than investment-grade for most
projects) and regulated investment norms for pension/insurance
funds are key reasons for poor financing of infra projects in India.


 Road ahead for infra finance. Diverting long-term household
savings (pension/insurance) and channelling more foreign
funds/forex reserve into infrastructure would help close the
funding gap. Also likely to aid this are the recent government
initiatives such as creation of IIFCL, IFC status for infrastructure
financing NBFCs and concept of Indian Infrastructure Debt
Fund.