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Wednesday, June 9, 2010

Infra cos seeking project-specific financing

Infrastructure companies seem to be waking up to the benefits of project or vertical-specific fund-raising instead of mopping up finances at the parent company level.

Several companies have recently raised funds for specific projects or verticals, with GMR Infrastructure’s power generation arm being the latest to do so. GMR Energy last week raised Rs465 crore from a consortium of investors led by IDFC.

GMR Energy had a month earlier raised about Rs 940 crore from the Singapore government-owned Temasek Holdings. Gayatri Projects also roped in Singapore’s Sembcorp Utilities as a partner for its 1,320 mw thermal power project, worth over Rs 5,000 crore, in Andhra Pradesh.

According to sources, at least 20-25 projects worth about Rs 1 lakh crore, with an average project cost of about Rs 5,000 crore, are waiting to be funded by investors.

The chief financial officer of an infrastructure major, requesting anonymity, said a majority of such projects are in the areas of energy and roads. “These are segments where the returns are clearly visible to investors. Within roads, they are more inclined towards toll-based projects than annuity projects. In the energy sector, there is no problem with any model. It could be either PPA (power purchase agreement) or merchant,” he added.

KG Naidu, CFO of Gayatri Projects, said the trend is driven by the surge in project costs. “The capital requirements of companies have gone beyond their internal accruals or their debt raising abilities,” he noted.

Moreover, the setting-up of special purpose vehicles at the project level makes each project a distinct entity, Naidu added.

His peers in the industry agree. Ashwin Parmar, director of business development, Patel Engineering, sees twin benefits in project-based funding. “The risks are shared on a project basis and bringing in a reputed partner improves the standing of the project,” he said.

Patel Engineering is developing three hydropower projects with a combined capacity of 1,500 mw. Though the company has no immediate plans to raise funds for the SPVs, Parmar said it will look at the option at an opportune time.

Industry sources said companies are also willing to rope in investors to ensure that the available capital is used well to expand the portfolio.

“These days the cost of each project is equivalent to the earlier balance sheet of some companies. The size of the projects is making promoters look at involving private equity or other investors at the project level… Fortunately the investors too are coming forward,” the finance head of another infrastructure company with interests in sugar and ferro alloys said.

On the other hand, investors also find such options attractive because a lot of developers, including IVRCL Infrastructures & Projects and Madhucon Projects, are spinning off their special purpose vehicles into separate entities before listing it. Experts say this provides a clear exit option for the investors.

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