Executive VP and Group Head, Infrastructure, SBI Capital Markets
1) What has been the experience so far with attempts to develop alternative sources of financing (beyond commercial banks) - bonds, InvITs, IDFs, etc.?
Attempts have been made to develop alternative sources of financing beyond commercial banks; these being developing bonds markets, developing new structures – InvITs, IDFs.
Infrastructure Debt Funds (IDFs):
An IDF can be set up either as a trust or company. A trust-based IDF is a mutual fund that issues units to investors and is regulated by SEBI. Under the company-based format, the IDF is an NBFC that issues bonds to investors. So far, three infra debt funds have been set up through the NBFC route and three through the MF route.
- India Infra Debt Limited, IDFC Infrastructure Finance Limited and L&T Infra Debt Fund
- Total AUM of around Rs. 2,900 crore in June 2017
- IIFCL, IL&FS and SREI: IDFs under the MF route (IIFCL, ILFS, SREI)
- Total AUM of around Rs. 2,000 crore.
Infrastructure Investment Trusts (InvITs):
Sponsor can raise funds by transferring assets to trust which would be managed by trustees
Till date 6 InvITs have been registered with SEBI, of which only 2 are listed with stock exchange.
|Sr. No.||Name||Reg. No.||Validity|
|1||India Grid Trust (Listed)||IN/InvIT/16-17/0005||Nov 28, 2016 - Perpetual|
|2||IRB InvIT Fund (Listed)||IN/InvIT/15-16/0001||Mar 14, 2016 - Perpetual|
|3||GMR Infrastructure Investment Trust||IN/InvIT/15-16/0002||Mar 17, 2016 - Perpetual|
|4||IL&FS Transportation Investment Trust||IN/InvIT/16-17/0006||Dec 07, 2016 - Perpetual|
|5||MEP Infrastructure Investment Trust||IN/InvIT/16-17/0003||Jun 16, 2016 - Perpetual|
|6||Reliance Infrastructure InvIT Fund||IN/InvIT/16-17/0004||Nov 24, 2016 - Perpetual|
Source: SEBI website
Neither of the two aforementioned listed InvITs have managed to touch or cross their listing price of Rs 100 per unit. This has led to other companies putting their listing on hold.
|Masala Bonds||Indian Rupee denominated bond issued in offshore capital markets.||· In FY-15, IFC committed Rs. 10 Bn investment in India and issued First Masala bond listed in London.
· In FY-17, HDFC raised Rs. 30 Bn via unrated bonds sold to investors in Europe and Asia.
· Other Masala Bonds: Adani Transmission ($400 Mn @9.10%), DHFL ($150 Mn @8.5%)
|Green Bonds||Specifically earmarked to be used for climate and environmental projects, typically asset-linked and backed by the issuer's balance sheet.||· In 2015, YES Bank issued first green bond of Rs. 10 Bn for financing the renewable and clean energy projects.
· Other Green Bonds: IREDA (Rs. 19.5 Bn @7.125%), PFC ($400 Mn @ 3.75%) and IRFC ($500 Mn @3.835%).
· NTPC Green Bond: Rs. 20 Bn @ 7.375% with a maturity of 5 years. Proceeds invested to support wind and solar projects.
|Credit Enhancement Scheme||Partial credit guarantee enhances the ratings of the project bond issue thereby enabling channelization of long term funds from investors like insurance companies, pension funds||· ReNew Power raised Rs. 451 Crore and Hindustan Power projects raised Rs. 380 Crore for refinancing its existing debt under CE scheme provided jointly by IIFCL-ADB.|
2) Which sources hold the most promise given the Indian scenario?
Infrastructure sector involves long gestation projects and thereby the exposure towards these projects remains for a very long time. Accordingly, both the financiers as well as the corporates focus on reducing the cost of such investments.
i) IDFs offer easier financing at both SPV and hold-co level,
ii) InvITs allows raising funds from multiple class of investors by transfer of multiple SPVs from promoters to the InvIT. InvITs provide for ease of raising funds, however this could restrict future IPOs as ownership of operating assets is transferred to the InvIT.
iii) Bonds provide the flexibility of obtaining finer pricing based on credit rating of operating platform or at hold-co level.
|Ease of raising funds||Operational projects with at least 1 year of operational performance.||· Both operational and under construction projects could be clubbed under this structure
· Cumulative project size >= Rs. 500 crore
· Issue size >= Rs. 250 crore
|Usually raised at Holding Company level based on past operational performance at Corporate level.|
|Cost of raising funds||Lower RoI||Yields, usually higher, in line with market||Coupons, usually lower, in line with comparative rated debt security|
|Other Charges||Processing charges
Rating Agency fees
|Stock exchange listing charges
Merchant banks fees
Rating Agency fees
Could impact future IPO plans, if any
|Quantum of fund raising (market appetite)||Limited, on account of risk appetite and size of IDF balance sheets||Higher (depending on the valuation/ market sentiments)||Higher, depending on rating of debt paper|
|Time frame for fund raising||Lowest||Highest||Medium|
|Other requirements||Mandatory Credit Rating||Mandatory listing on stock exchange||Mandatory Credit Rating|
Hence, the end user needs to carefully consider the funding needs and value creation opportunities offered by each of the route.