M K Sinhainfracp
Managing Partner and Co-Head - India, Global Infrastructure Partners India LLP
1. What has been the experience so far with attempts to develop alternative sources of financial (beyond commercial bank) - bonds, InvITs, IDFs, etc?
The natural pattern of financing infrastructure is construction financing to be provided by commercial banks and financial institutions based on an appraisal by a specialised project finance team. In India, unfortunately, commercial banks have limited specialised industry knowledge/skills and have therefore landed themselves into the current NPA trouble. Infrastructure Debt Funds are a good idea and should ideally be used for construction financing by commercial banks through specialised teams who can evaluate construction risk. However, it has not taken off because of multiple limitations in terms of ownership restriction and investment mandate that are prescriptive and focussed on post construction stage. After infrastructure projects have stabilized post commencement of commercial operations, the construction loan is ideally refinanced in a bond market through a public issuance as it is a de-risked product. Likewise, the equity can be monetised through InvITs framework. Bonds and InvITs that are meant to be substantially de-risked products and are ideal for investors with low risk, low return but long term hold investment pattern like Pension Funds, Provident Funds and Insurance Funds. Unfortunately, the investment mandate of such funds in India is regulated with very little allocation to these financial products. Therefore, the development of alternative source of these financing infrastructures have been limited.
2. Which sources hold the most promise given the Indian scenario?
As mentioned above, Infrastructure Debt Fund mandate needs to expand to be a pooling vehicle for commercial bank providing construction financing loan infrastructure which are evaluated by specialised infrastructure professionals. Also regulation should be relaxed to allow Pension Funds, Provident Funds and Insurance Funds to invest in fully operational, de-risked and stabilised infrastructure assets with a high grade credit rating as it is another huge untapped potential source of financing. In terms of foreign capital, India provides one of the largest investment opportunities in yield oriented products for the global pension funds which are chasing yield. This pool of capital can be used to refinance infrastructure once it built and operational. We have seen the success to ToT in roads and we should try and replicate that model in other areas of infrastructure.
3. What are your views on "The Economic Times Infra Focus Summit" and how important do you to feel is the need of organizing such summits?
The Economic Times is a prominent business daily and well positioned to invite influential stake-holders to discusses issues around the infrastructure development through "The Economic Times Infra Focus Summit". More importantly, it can propagate a gist of those discussions through press coverage. Hence, I would encourage The Economic Times to continue to organize such summits.