WELCOME TO  DIGNITARIES - PowerPoint Presentation

1. WELCOME TO  DIGNITARIES AND      PARTICIPANTSINFRASTRUCTURE FINANCINGA PANACEA FOR DEVELOPMENT OFA  NEW INDIAA very Pertinent and contemporaryTheme 

2. DEVELOPMENT OF  NEW INDIAVISIONTo BE A  US $ 5 trillion economy by 2025To Be A US$10 trillion economy by 2030AN ESG Compliant INDIATo Achieve Target of 500 GW of Renewable  Energy by 203045% reduction in carbon intensity by 2030net zero carbon emissions by 2050            

3. Infrastructure DevelopmentBackbone of Indian EconomyEnabler of Rapid Holistic Development withA MULTIPLIER EFFECTWith BOTH BACKWARD and FORWARDLINKAGES

4. Defining Infrastructure 4Sr. No. CategoryInfrastructure Sub- sectors1Transport and LogisticsRoads and bridgesPortsShipyardsInland WaterwaysAirportRailway track including electrical & signalling system, tunnels, viaducts, bridgesRailway rolling stock along with workshop and associated maintenance facilitiesRailway terminal infrastructure including stations and adjoining commercial infrastructureUrban Public Transport (except rolling stock in case of urban road transport)Logistics Infrastructure Bulk Material Transportation Pipelines2EnergyElectricity GenerationElectricity TransmissionElectricity DistributionOil/Gas/Liquefied Natural Gas (LNG) storage facility3Water and SanitationSolid Waste ManagementWater treatment plantsSewage collection, treatment and disposal systemIrrigation (dams, channels, embankments, etc.)Storm Water Drainage System

5. Defining Infrastructure 5Sr. No. CategoryInfrastructure Sub- sectors4CommunicationTelecommunication (fixed network)Telecommunication towersTelecommunication & Telecom Services5Social and Commercial InfrastructureEducation Institutions (capital stock)Sports InfrastructureHospitals (capital stock)Tourism infrastructure viz. (i) three-star or higher category classified hotels located outside cities with population of more than 1 million, (ii) ropeways and cable cars.Common infrastructure for Industrial Parks and other parks with industrial activity such as food parks,textile parks,Special Economic Zones, tourism facilities and agriculture marketsPost-harvest storage infrastructure for agriculture and horticultural produce including cold storageTerminal marketsSoil-testing laboratoriesCold ChainAffordable HousingAffordable Rental Housing ComplexExhibition-cum-Convention Centre

6. Multiplayer Effect- Illustrations of linkages with development of other sectors and Economy as a wholeLinkages- Metro Rail ProjectsProjects of 1400 KMs worth Rs 2 lacs  are under approval. This will lead to  business opportunities civil construction sector for about 80000 crores.2) Cement Production increase – 21%  YOY growth last year at 361 million tonnes due to thrust on infrastructure development and affordable housing and roads etc.

7. 3) Steel industry impact on demand due to Infrastructure developmentslides 2

8. Forward Linkagesleading to efficiency, cost reduction and optimum utilization of resources1) A well developed Road sectorFamous saying by  President J .F KennedyReduction in commuting time and transportationReduction in fuel consumptionlesser wear tear of vahicles

9. Power –Manufacturing directly dependent on  Regular availability of power at competitive ratesPorts and LogisticsFaster and increased availablity of goods and services.Social InfrastructureDirect impact on welfare of massesA look at infrastructure sector features and way forward

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11. 11Elements of Project Finance

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14. OPPORTUNITIES FOR INFRASTRUCTURE DEVELOPMENT

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19. RBI Guidelines on Infrastructure FinancingBroadly covered under Master circular dated 1.7.2015 relating to Loans and Advances – Statutory and other restrictions Salient Features : -Banks/FIs are free to finance technically feasible, financially viable and bankable projects undertaken by both public sector and private sector undertakings subject to the following conditions:(i) The amount sanctioned should be within the overall ceiling of the prudential exposure norms prescribed by RBI for infrastructure financing. (ii) Banks/ FIs should have the requisite expertise for appraising technical feasibility, financial viability and bankability of projects, with particular reference to the risk analysis and sensitivity analysis.(iii) In respect of projects undertaken by public sector units, term loans may be sanctioned only for corporate entities (i.e. public sector undertakings registered under Companies Act or a Corporation established under the relevant statute). Further, such term loans should not be in lieu of or to substitute budgetary resources envisaged for the project. The term loan could supplement the budgetary resources if such supplementing was contemplated in the project design.(iv) Banks may also lend to SPVs in the private sector, registered under the Companies Act for directly undertaking infrastructure projects which are financially viable and not for acting as mere financial intermediaries. Banks may ensure that the bankruptcy or financial difficulties of the parent/ sponsor should not affect the financial health of the SPV.

20. Types of Financing by Banks(i) Direct Lending In order to meet financial requirements of infrastructure projects, banks may extend credit facility by way of working capital finance, term loan, project loan, subscription to bonds and debentures/ preference shares/ equity shares acquired as a part of the project finance package which is treated as "deemed advance” and any other form of funded or non-funded facility.(ii) Take-Out Financing Take over of brownfield/completed of projects involving recycling of funds. (iii) Inter-Institutional GuaranteesBanks are permitted to issue guarantees favouring other lending institutions in respect of infrastructure projects.Credit enhancement evolving as a new product for funding.(iv) Financing of promoters equity-permitted in prescribed manner and circumstances.AppraisalIn respect of financing of infrastructure projects undertaken by Government owned entities, Banks/Financial Institutions should undertake due diligence on the viability of the projects.The infrastructure projects are often financed through Special Purpose Vehicles. Financing of these projects would, therefore, call for special appraisal skills on the part of lending agencies. Identification of various project risks, evaluation of risk mitigation through appraisal of project contracts and evaluation of creditworthiness of the contracting entities and their abilities to fulfil contractual obligations an integral part of the appraisal exercise. Individual and group exposure norms to be complied with.Emphasis on effective monitoring of projectsAsset /liability management -long term loans upto 25 years repayment .Maturity profile of deposits and availability of long term resources to be ensured to avoid mismatches.

21. Types of Financing by Banks(i) Direct Lending In order to meet financial requirements of infrastructure projects, banks may extend credit facility by way of working capital finance, term loan, project loan, subscription to bonds and debentures/ preference shares/ equity shares acquired as a part of the project finance package which is treated as "deemed advance” and any other form of funded or non-funded facility.(ii) Take-Out Financing Take over of brownfield/completed of projects involving recycling of funds. (iii) Inter-Institutional GuaranteesBanks are permitted to issue guarantees favouring other lending institutions in respect of infrastructure projects.Credit enhancement evolving as a new product for funding.(iv) Financing of promoters equity-permitted in prescribed manner and circumstances.AppraisalIn respect of financing of infrastructure projects undertaken by Government owned entities, Banks/Financial Institutions should undertake due diligence on the viability of the projects.The infrastructure projects are often financed through Special Purpose Vehicles. Financing of these projects would, therefore, call for special appraisal skills on the part of lending agencies. Identification of various project risks, evaluation of risk mitigation through appraisal of project contracts and evaluation of creditworthiness of the contracting entities and their abilities to fulfil contractual obligations an integral part of the appraisal exercise. Individual and group exposure norms to be complied with.Emphasis on effective monitoring of projectsAsset /liability management -long term loans upto 25 years repayment .Maturity profile of deposits and availability of long term resources to be ensured to avoid mismatches.

22. ELEMENTS OF PROJECT STRUCTURE The relevance and requirements of special purpose vehicle (SPV) structure and the PPP models have been discussed in this chapter

23. PPP PROJECT MODELS IN ADDITION HYBRID ANNUITY MODEL (HAM) AND TOLL OPERATE TRANSFER (TOT) MODEL HAVE ALSO BEEN DISCUSSED, WHICH HAVE EMERGED AS IMPORTANT MODELS RECENTLY.

24. PROJECT STRUCTURE FOR FINANCING EACH STEP OF THE FLOW CHART HAS BEEN ELABORATELY EXPLAINED

25. THE ROLE AND RESPONSIBILITY OF EACH STAKE HOLDER AND THEIR CONTRACTUAL OBLIGATIONS ARE DISCUSSED IN DETAIL

26. FINANCING STRUCTURE AND CREDIT APPRAISAL PROCESS The basics of consortium lending & syndication process are discussed with appraisal aspects relating to Management appraisal Economic Appraisal Marketing Appraisal Financial AppraisalCost of Project and means of finance are covered in detail with salient points as under Item wise meticulous assessment of cost of project Interest cost and DSRA Prevention of Over invoicing as well as underestimation of cost Elaborate discussion on capital structure Debt option, Debt structure, Deferred Credit etc.

27. KEY PERFORMANCE INDICATORS Financial Ratios Elaborate discussion on major Financial Ratios like IRR, NPV, DSCR FACR, BEPNon financial Indicators Environmental social and Governance (ESG) Risks & Mitigation Measures Business Responsibility and Sustainability Report are also touched open RISK MANAGEMENT

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29. THIS STEPS HAVE BEEN DISCUSSED IN DETAIL WITH APPROPRIATE EXAMPLES

30. CASE STUDIESThe following case studies have been comprehensively discussed with all relevant aspects and intricacies specific for each kind of  project:-Road sector - Hybrid Annuity ModelBid criteria --cost evaluation of the project .Traffic study detailsAvailability of Right of wayConstruction RiskContribution by NHAI in project cost and payment of annuities DSCR and IRR evaluationSignificant improvement in  HAM model with changes in frequency of payment by NHAI and interest rate payments have been highlighted.

31. CASE STUDIESRoad sector  - Toll Operate Transfer Model -Monetisation of infrastructure assetsBid criteria -- Highest upfront payment by developerConcession agreement termsUser fee rights  -Traffic studyMaintenance ObligationsSensitivity analysis -IRR /DSCR

32. CASE STUDIESSOLAR POWER PROJECTLand AcquisitionSolar Resources Assessment Irradiation levelPower Evacuationchoice of technologyModule. SupplierTariff determination-PPA termsThe emerging trends of improvement in technology and reduced module costs and lower competitive tariffs have been duly covered. 

33. INDICATORS OF STRESS IN INFRASTRUCTURE PROJECTS In addition to the points relating to the early warning signal discussed in the previously the specific issues pertaining the infrastructure project are;-Time over run delay in approvals from concession authority environmental clearances and others approval of local bodies.Cost overrun interest cost and inflation impact on the projectchange of scope of the projectInadequate revenue –Traffic over estimation non achievement of targeted capacity delay in payments. Non revision of tariff.

34. STALLED PROJECTSSeveral instances of delayed projects and stalled project have a merged in infrastructure due to various reasons which includeImproper planning of the project at initial stage Delay in approvals from various authorities Local issues in providing right of way for construction of road (this will include existence of religious buildings and others structures) Change in policies like prohibition on mining of construction material Change in scope of work due to geographical uncertainties particularly in hydel projects

35. RBI-One Time Restructuring Scheme 2020Available only to borrowers having stress caused by COVID-19Permits additional funding including interim funding after InvocationList to sign the ICA within 30 days of Invocation Date Minimum 75% by value of outstanding credit facilities and 60% by numberto make it validAccount classified as Standard and default not exceeding 30 days as on March 1, 2020 with any leading Institutions and should continue to be Standard as on innovation DataLanding Institutions may allow Moratorium and/or extension of residual tenure (aggregate w tension not to be two years) To consider the Financial Parameters and the sector specific range there for notified by RBLCURRENT GUIDELINESON DEALING WITH COVID 19 RELATED STRESS

36. ROLE OF ASSET RE CONSTRUCTION COMPANY HAS EMERGED

37. Reasons for NPAExternal Reasons – Reasons beyond the control of the PromoterInternal Reasons- Reasons on account of Issues with the Promoter/group itselfExternal FactorsDelay in construction – time over run Increase in cost of projectsNon availability of right of wayDelay in other approvals- Forest shifting of utilitiesAlternate road reducing the revenue collectionReduced revenue education and political reasons Reduced revenue- Ban on mining and quarryingReduced revenue exemptions on Private VehiclesPCOD achieved but land not available for remaining projectDelay in issuance of PCODNon approval for boiler etc Integrated Project partly completed

38. ALTERNATE SOURCES OF FUNDING AND THE WAY FORWARDWith ever-growing need for financing Infrastructure as a major tool for economic development, the role of alternate Sources of funding has become crucial. Elaborate discussion on the followingIDFSINVITSTOT ModelCredit Enhancement Guarantee Bonds SecuritizationRole of NABFID

39. THANK YOU!MAXIM FOR FINANCERSKEEP YOUR EYES & EARS OPEN AND YOUR HANDS CLEAN