Ind-Ra: More Infra Companies Could Issue Bonds Viewing Govt Interest

The issue of corporate bonds by public sector infrastructure companies has evoked a positive response from the market and more players are likely to follow suit, says India Ratings & Research (Ind-Ra).

These bonds facilitate infrastructure developers to raise funds at a lower cost than bank financing. Government's (sovereign and states) equity participation in infrastructure projects along with guarantees are supporting companies in raising bonds.

Size-based Government Funding

Ind-Ra believes that the government need not provide equity for small infrastructure projects such as 100km road stretch and is better off by providing viability gap funding to the concessionaire. However, equity contribution from government is a 'statutory' requirement for strategic infrastructure projects such as metro rails. These infrastructure projects involve a long gestation period and need long-term funds for execution. Sovereign participation eases access to funds from multilateral agencies. Low-cost loans with a long repayment period reduce stress on projects and thus user charges, increasing usage of the services offered by these projects.

Participatory Market

Diversification of the infrastructure market with easy entry and exit barriers for different type of investors such as shareholders, bankers and bond holders is a continuous process and results cannot be achieved overnight. The broadening of the debt market has begun with infrastructure players increasingly and successfully issuing corporate bonds at low interest rates.

Bangalore Metro Namma Bonds

Bangalore Metro Rail Corporation Limited (BMRCL) is one such project, where both central and state governments have infused equity and provided sub-debt and it was also required to raise bonds from the market. Ind-Ra rated BMRCL's bonds at 'IND AA(exp)' in July 2014. Moreover, sovereign support is available for long-term multilateral debt from Japan International Co-operation Agency and Agences Francaise de Development, etc. State government support is coming through a shadow cash support arrangement for timely debt servicing. This agreement also shows the commitment of the state government for financial discipline. BMRCL in December 2014 raised INR3bn (Namma Metro Bonds) for 10 years at 8.79%, 121bp lower than the base rate of State Bank of India.

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