Financing for Infrastructure Projects: Sources And Benefits

1
(No Transcript)
2
Financing for Infrastructure Projects Sources
And Benefits

• Are you looking for ways to finance
  infrastructure projects? But don't know where to
  begin? A short period of time has passed since
  the financing for infrastructure projects was the
  public sector's responsibility only. But as the
  world progressed, there was a need for the
  private sector to take the initiative in
  investing money in projects for the
  infrastructure sector as well. This initiative
  has changed the game of the infrastructure
  sector, such as telecom, power, and
  transportation, especially in developing
  countries.
• The issue arises because the public sector solely
  cannot finance these infrastructure projects as
  it does not have enough finances to meet the
  requirement. Private sector participation is
  necessary to develop world-class infrastructure
  like those of developed countries. Developing
  countries need more infrastructure projects in
  order to meet the demand of the increasing
  population.

3
Definition of infrastructure lending

• Various institutions such as banks, financial
  Institutions, and NBFC, fall in the category of
  "infrastructure lending," or provide financing
  for infrastructure projects.
• In simple words, the borrower company is engaged
  in the following tasks
• Development
• Operation and Maintenance

4
 Development, operation, and maintenance of the
infrastructure projects come under the following
sectors

• Roads including tolls, bridges, or a railway
  system
• Highway projects and activities related to it are
  an integral aspect.
• Port, airport, inland port, or waterway
• Water supply, irrigation projects, sanitation,
  and sewage system
• Telecommunication system Basic, cellular and
  Radio
• Generation, distribution and transmission of
  power
• The names of eligible infrastructure projects are
  decided by the department of economic affairs,
  Ministry of Finance and a Harmonized List of
  infrastructure projects is issued from time to
  time for necessary action by all the
  stakeholders.

5
Characteristics of infrastructure projects

• They are highly capital intensive. They have a
  long operating life, and huge sunk costs are
  involved in them. Traditional infrastructure
  projects were under the control of the only
  government. Most infrastructure projects are
  based on the public-private partnership (PPP)
  model. So careful evaluation of complexities is
  required before financing for infrastructure
  projects.

6
Types of financing by banks

• The financial requirements for infrastructure
  projects are fulfilled by the banks. Capital
  finance, term loan, project loan, shares are
  acquired as a part of the project finance
  package. The banks are involved in the following
  types of financing for infrastructure projects
• Takeout financing - Banks enter into takeout
  financing arrangements with the help of
  institutions like IIFCL.
• Inter-institutional guarantees - As per the
  instructions from RBI, banks are permitted to
  issue guarantees in favor of other banks or
  lending institutions. Provided the banks that
  issue guarantees take a share in the funds to the
  extent of 5 percent of the overall project cost
  and undertake normal credit appraisal,monitoring
  and follow up on the project.
• Financing promoters' equity - The promoters'
  contribution towards a company's equity capital
  should come from their own resources, and
  permission to take up shares of other companies
  is restricted.

7
What services must be offered by financial
institutions while looking out for financing for
infrastructure projects?

• Identifying the projects with cash flows
  Emphasis is given to revenue generation and
  bankability potential.
• Organize, prepare, and form a transaction
  structure by discussing it with the consulting
  financial and legal experts.
• Identify the right investors and achieve
  financial closure.
• Render support to the client through the
  execution and construction phase

8
Benefits of different sources of financing for
infrastructure projects

• Length Agreement to finance infrastructure via
  public finance is time-consuming and must go
  through budget review before approval.
• Contractual Inflexibility Regulatory reviews
  allow changes that you won't find in other forms
  of private financing companies.
• Off-balance sheet If risks are transferred to
  the private sector, private finance
  infrastructure does not add to the standard
  measures of the public sector's debts. These
  things would be politically beneficial.
• Transferred responsibility Responsibility of
  investment in infrastructure can be shifted to
  the private sector.

9

• A great deal of money is involved in turning the
  idea of a project into a reality. Not only does
  it necessitate a lot of funds but extensive
  planning as well. So before obtaining financing
  for infrastructure projects from a lending
  company or bank, meticulous planning is required.
  It would leave no stone unturned in turning your
  dream project into a success and offer you good
  returns once the project is completed. Compare
  the benefits and drawbacks of multiple financial
  institutions and whatever suits you the best
  choose that option.

Original Source Financing For Infrastructure
Projects