Infrastructure Finance - Conference on infrastructure finance - Key takeaways

At the conference hosted by Indian infra magazine/Power Line, on 'Road ahead for infrastructure finance', panellists/speakers indicated that massive investment planned for infrastructure in India in the XII five year plan (FYP) is likely to result in debt-funding gap. Key reasons are higher dependence on bank funds, poor credit ratings, low infra debt investments by insurance/pension funds and external sources. To counter these, regulatory/structural changes for tapping long-term household savings and external borrowings would be required.

n       Huge investment outlay. Infra investments projected for the XII FYP are +US$1trn (9-10% of GDP), which is twice those targeted for the XI FYP (~7.5% of GDP). Private investments in the XII FYP are estimated at 50% vs. 31% in the XI FYP – i.e., 3.2x those targeted for the XI FYP.

n       Limited debt resources. The panellists were of the view that the total funding gap will be ~22-30% for the XII FYP. Arranging debt for this gap will be a key challenge going forward. Private debt funding gap (requirement vs. availability) is estimated at US$80bn in the XII FYP.

n       Equity requirement likely to be met. Equity commitments for projects are likely to be met through various sources such as private equity investments, venture capital and IPO. Equity investors are currently sitting on cash, awaiting better projects at reasonable valuation.

n       Regulatory and structural issues for financing. Infrastructure debt finance is largely confined to banks (~50%), which are constrained by sectoral caps/exposure norms and asset-liability mismatch. Also, an underdeveloped bond market, poor credit ratings of infra projects (lower than investment-grade for most projects) and regulated investment norms for pension/insurance funds are key reasons for poor financing of infra projects in India .

n       Road ahead for infra finance. Diverting long-term household savings (pension/insurance) and channelling more foreign funds/forex reserve into infrastructure would help close the funding gap. Also likely to aid this are the recent government initiatives such as creation of IIFCL, IFC status for infrastructure financing NBFCs and concept of Indian Infrastructure Debt Fund.