1. Energy Financing Challenge
5th India Energy Congress
Pradeep Singh
Vice Chairman & CEO, IDFC Projects
Feb 2013

2. Funding Infrastructure Debt
Source: India Infrastructure Research
Historically Infrastructure Debt funded by Commercial Banks and NBFCs

3. Debt Financing Issues
Commercial Banks (CBs) & NBFCs: Heavy dependence on PSU banks 80 percent of total debt, 30 percent CAGR
Prudential Limits
Asset Liability mismatch
Assured liquidity but no assured pricing
Interest rates are reset annually or after every three years
Insurance Companies & Pension Funds
Limited presence due to regulatory challenges (As per IRDA investment notification Aug 08, insurance companies can invest only in instruments rated AA and above)
Infrastructure projects rated much lower without credit enhancement
ECB
Restrictive ECB guidelines
Cost of funds through ECBs has risen due to volatility in forex markets 3

4. Securitization and Bonds: Drivers & Goals
Broaden participation in debt
Securitisation as an instrument for refinancing, allows creation of tradable securities thereby making financing attractive to Pension Funds, Insurance Companies, Infrastructure Debt Funds and retail
Reduction in Costs
At COD, the construction risk is mitigated and hence the risk profile is lowered. This warrants a reduction in cost of debt.
For most infrastructure projects, once the base cash flows have stabilized the revenue risk is significantly reduced; thereby reducing risk profile of project.
Extension of Tenors

5. Bond Market
Bond markets suitable for raising debt funds for projects with lowered risk
Enable participation by retail investors and other institutional investors, Insurance Companies and Pension Funds with longer tenor funds
Presently domestic bond market is extremely underdeveloped
Illiquidity, limited appetite for long term issues, no flexibility allowed in repayment
(Source: FICCI Banking & Finance Digest)

6. Steps taken so far to improve the bond market
Rationalization of stamp duty, and the abolition of tax deduction at source as in the case of government securities
SEBI is in the final stages of putting in place an exchange trading system for corporate bonds
Infrastructure Debt Funds currently under discussion
Rating agencies to play important role in enabling IDFs to invest in bonds floated by Infrastructure Project Companies

7. Recommendation Primary role of Government
Provide broad framework and not get into detailing Business Plans
Provide Tax Concessions
Create a brand by associating with the IDF
Provide for Credit Enhancement
Real Benefit of IDFs
Attract International Flows
Credit enhancement necessary
Sovereign Guarantee by GoI but not sufficient as India is rated BBB- internationally
Need for partnering with multilateral agencies like ADB to enhance the credit rating to AAA paper which is accepted internationally 7

8. THANK YOU