The Asian Development Bank (ADB) has approved a $700-million line of credit to India Infrastructure Finance Company Ltd (IIFCL), a State-owned company focusing on infrastructure development.
As part of the funding, the Manila-based development bank will, for the first time, support take-out financing in India. Take-out finance would replace bank loans, freeing banks to invest in other greenfield projects and ease their sector and borrower exposure limits.
The new financing facility — Accelerating Infrastructure Investment Facility in India — will focus on supporting public-private partnership projects in roads, highways, airports, urban infrastructure and also some renewable energy projects.
ADB’s funds will be provided through two loans under a multi-tranche financing facility, said Cheolsu Kim, Lead Finance Specialist in ADB’s South Asia Department.
While the first tranche of $400 million will be released from January, the second of $300 million will most likely be released in 2016, Kim told Business Line over phone from Manila. The disbursement of the second loan hinges on the performance of the first tranche.
Kim said the market was not ready for a product like take-out finance. “But the situation now is such that take-out finance can play a bigger role in infrastructure development in India,” he said.
The first loan of $400 million will have two components — direct loans to project developers and take-out finance. As much as 40 per cent of the first tranche is likely to be allocated to take-out finance.
IIFCL’s take-out finance scheme has been operational since November 2012. So far, IIFCL has disbursed Rs 2,300 crore under this scheme.
In the 12{+t}{+h} Plan period, the total requirement of funds for infrastructure projects is estimated at $1 trillion.
The major issue affecting the infrastructure sector is the absence of long-term funds. Banks typically lend for eight-nine years, whereas infrastructure projects require funding for a 20-25-year timeframe.
Most banks have reached the ceiling norms for lending to certain sectors and are finding it difficult to lend for infrastructure in these sectors
ADB’s latest financing for IIFCL comes on top of a previous $500-million-loan facility approved in 2007 and a further $700 million approved in 2009. Of this $1.2-billion-loan support, IIFCL has already drawn down $1.1 billion, it is learnt.
srivats.kr@thehindu.co.in