Current trends ion financing infrastructure projects

1. GRK

2. GRK
Infrastructure Development
Future:
• Global Experience
– Public - private Partnership-
Corporatisation
• Power generation,Cellular Telecom
– Concessionaire approach
• Roads /.Ports
– Convergence of interests of
financiers,developers,Consultants etc
• Indian Experience- same trajectory

3. GRK
Infrastructure Projects :
Financing Features
• Large Capital costs
• Long Gestation
• High Leverage ratios
• Public sector-dominance
• Currently, Private sector has
outpaced the Public
• Banks entry

4. GRK
Infrastructure Projects :
Financing Features
• Financing is multi-sourced
– Multilateral/Bilateral Agencies
– Capital Markets
– Commercial banks
– Public Finance
– Mezzanine Capital

5. GRK
Financing Infrastructure Projects:
Experiences from Abroad
• Unbundling of projects for easy financing
• Private participation on a contractual basis
• Shift from “asset-based” to “project-
based” financing
• Non-recourse financing/SPV
• Cash-flow from the project is the only
recourse

6. GRK
Infrastructure Projects:
Finance Products
• Leveraged Leases
• Takeout Finance
• Industrial Revenue Bonds
• Pooled Project Financing Vehicle
• Trustee Borrowing Vehicle/RTA
• Commoditized Finance
• Guarantees

7. GRK
Financial Markets:What for?
• Facilitates trading on outputs
– Surplus economic units
– Deficit economic units
• Provides liquidity
– Facilitates trading on pre-existing
assets

8. GRK
Financial market Structure
Financial
Markets
Investors
Financial
Intermediaries
Savers
Regulators

9. GRK
Financial Markets
•Capital market
•Primary, Secondary, Derivatives
•Debt market
•Bond/debenture, Bank loans
•Money Market
•Call money
•MMMFs,T-bills, CPs/CDs. Bills
refinancing
•REPOs
•Forex market
Spot and forwards

10. GRK
Capital Markets
• Ordinary Shares
• Preference Shares
• Convertible &Exchangeable Bonds
• Warrants
• Rights Issue
• Underwriting
• Book-building

11. GRK
International Financial Markets
• Euro Markets
• U.S. Dollar Market
• Japanese Yen Market

12. GRK
ECB
• Eligibility
• Recognized Lenders
• Amt &Maturity
• All-in-cost ceilings
• End-use
• Guarantees
• Security
• Parking of ECB Proceeds
• Prepayment
• Debt Servicing

13. GRK
Major Funding Instruments
• Syndicated Banks loans
• Bonds
– Straight or Fixed Rate Bonds
– Callable Bonds
– Convertible Bonds
– Sinking Fund Bonds
– Currency Option Bonds
– Floating Rate Notes
• Note Issuance Facility (NIF)
• Medium Term Notes (MTNs)
• Commercial Paper

14. GRK
European Depositary Receipts
(EDRs) –
• Usually listed on a European exchange.
• represented by a single global
certificate, and deposited with a
common depository on behalf of
Euroclear
• Ownership is transferred through,
records maintained by Euroclear

15. GRK
American Depositary Shares
(ADS) –
• A trading unit for the issuer in the U.S.
which may represent more or less than one
underlying share of the issuer.
• ADSs are issued in New York in registered
form, eligible for trading and clearing in the
U.S. markets, and may be made eligible for
clearing outside the U.S. in Euroclear and
other Exchanges.

16. GRK
GDRs
• Amount of issue finalised in US $.
• Lead Manager and other Managers underwrite the issue at a
price to be determined on the issue date.
• Depository and the custodian are appointed.
• Issues a share certificate equal to the number of GDRs to be
sold.
– Certificate in the name of Depository.
– Kept in custody of the custodian.
– Before receipt of the issue proceeds, the certificate is
kept in escrow.

17. GRK
GDRs
• Investors pay money to the issuer.
• The subscribers/the Lead Manager (after deducting
their commission and expenses), deposit the funds
with the Depository.
• The company registers the Depository as holders of
shares in its register of shareholders.
• The depository delivers the GDR to a common
depository, who allots GDRs to individual investors.

18. GRK
GDRs
• The GDR holders pick up their GDR certificates.
• After a cooling off period, the GDR holders can
convert their GDRs into the underlying shares by
surrendering GDRs to the depository.
• These are traded in the major stock exchanges.
• The issuer firm pays dividends in home currency.

19. GRK
Green Shoe Option –
• option for the underwriters to acquire
from the company and resell up to an
additional 15% of the firm commitment
stock to cover over-allotments to
customers of the firm commitment stock.
• allows the underwriters to obtain some
additional stock at the same price

20. GRK
Road Show –
• In the last week before the effective date of an
underwritten public offering, a road show is
arranged.
• Top officers of the company, investment bankers,
lawyers and auditors, meet money managers and
representatives of the underwriting syndicate.
• Prospectus is not yet available in required final
form at the time of the road show.
• It is typically a marketing effort

21. GRK

22. GRK
Pre-Requisites of PSP
• Transparent Policy Guidelines
• Consistency in Policy Frame work
• Commitment of All Stakeholders
• Clarity of Responsibilities
• Clear Understanding About Roles
• Fair Rate of Return
• Good Information Base
• Tariff Reforms
• Finding A “Champion”

23. GRK
Infrastructure Projects:
PSP options
• BOT : Build-Operate-Transfer
• BTO : Build-Transfer-Operate
• BROT : Build rent-operate transfer
• BOOT : Build-own-operate-transfer
• BOO : Build-own-operate
• ROT : Refurbish –operate-transfer
• MOT : Modernize-operate-transfer
• ROO : Refurbish-own-operate
• MOO : Modernize-own-operate
• DBFO : Design-build-finance-operate

24. GRK
Infrastructure Projects: Parties
involved in implementation
• Contracting Authority & other agencies of
Government
• Project Company and Project Sponsors
• Lenders
• International Financing Agencies&Export
Credit Agencies
• Insurers
• Independent Experts & Advisers

25. GRK
Infrastructure Projects:
Security Related Risks
• Security Cover
• Trustee Issues
• Inter-Creditor Issues
• Monitoring Issues
• Security enforcement
• Credit Enhancement
• Legality of Security cover
• Complexity of Documentation

26. GRK
Financing Infrastructure
Projects: Security Trustees
• Conflicts arise in Monitoring
– Security
– Cash Flows
– Reporting
• Financing Roles- ‘Grey Areas’

27. GRK
Financing Infrastructure
Projects: Inter-creditor Issues
• Right to Accelerate
• Order of Draw down
• Order of Appropriation
• Voting Powers

28. GRK
Financing Infrastructure
Projects: Monitoring Issues
• Professionals assisted
– Independent Evaluators
– Project Models
• Cash Flow monitoring through
– Reservoir account
– Retention account
– Milestones – coverage ratios

29. GRK
Infrastructure Projects:
Security Enforcement
• Cause of Enforcement
• Mode of Enforcement
• Delay in Enforcement
• Debt Recovery Act

30. GRK
Infrastructure Projects: Credit
Enhancement
• Govt.Guarantees
– Covers Policy risks
– May be rationed, Partial,Costly & On risk
sharing basis
– Does not guarantee default risk
• Sponsor's Guarantee
– Limited recourse on residual risks

31. GRK
Credit Enhancement:
Sponsor's Guarantee
• Helps in early Financial Closure
• Could be in the form of
– Limited Guarantee
– Completion Guarantee
– Deficiency Guarantee
– Non-Commercial Guarantee
– LCs
– Bond Insurance
– Cash Reserve Account
– Debt Subordination

32. GRK
Financing Infrastructure
Projects: Legal Issues
• Legal environment
– Generic laws
– Sector specific laws
– Financial laws
• Rights on liens
• Project agreements
• Step in rights
• Dispute resolutions
– Time bound disposals

33. GRK
Sectoral Issues: Telecom
• Fully functioning TRAI
• Clarifications needed on
– Interconnections, assignability-valuations,
spectrum allocations
– Rate rebalancing, interconnection pricing
– Tax-treatment, Project cost
– Benchmark rations, inter-creditor terms
• Self-financing after initial roll-over

34. GRK