RBI's draft project funding
norms may create funding challenge
Reserve
Bank of India's (RBI) draft norms for project financing, if implemented, are
likely to present funding challenges for both under-construction and
operational infrastructure projects. A mandatory tail period accounting for 15
per cent of a project's economic life will restrict the ability of
infrastructure projects to secure additional top-up loans, according to rating
agency CareEdge Ratings.
It
will necessitate an 8-10 per cent increase in equity requirements for Hybrid
Annuity Model (HAM) based road projects to align the loan tenure with 85 per
cent of the economic life for concessions lasting 15 years, said Rajashree
Murkute, senior director at CareEdge Ratings.
Projects
with stable cash flows, such as road annuities, transmission, and commercial
real estate, typically see an improvement in credit profile within one year of
establishing a payment track record from the counterparty.
Therefore,
the mandate to reduce debt by 20 per cent to lower provisioning could delay the
realisation of interest rate benefits for such operational projects, despite an
enhanced credit profile.
Nonetheless,
a compulsory 20 per cent debt reduction to achieve lower provisioning is
considered a positive step for demand-based projects, as it mitigates the risks
associated with bulky back-ended repayments and subsequent refinancing, Murkute
said.
www.business-standard.com
dt. 08.05.2024