The Coimbatore Bypass Road Project
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FINANCING OF THE PROJECT contd...A concession
agreement for the integrated project of bypass and a bridge at Athupalam on
NH-47 was signed on October 3, 1997 between the MoST, the government of
Tamilnadu and L&T. L&T set up a special purpose vehicle (SPV) - L&T
Transportation Infrastructure Ltd. (LTTIL), to implement the project. L&T
held 100% equity in LTTIL. LTTIL implemented the project on BOT basis, with
the revenue accruing directly to it.
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The project was constructed by L&T-ECC (Engineering
Construction Corporation) group, the largest construction organization
in India. L&T-Ramboll Consulting Engineers, a joint venture between L&T
and Ramboll of Denmark, was employed for quality control supervision and
review of the critical pavement design.
The project was financed by share capital of Rs 416 mn and term loan of
Rs 620 mn, with a debt-equity ratio of 1.5:1. As per the agreement with
the Tamilnadu government, L&T had to hold a minimum equity of 26% at the
end of 30 years[6]. |
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The debt financing was done by State Bank of India (SBI),
L&T Finance, Housing and Urban Development Corporation (HUDCO), Housing
Development Finance Corporation (HDFC), and Industrial Development Bank of
India (IDBI). IDBI had sanctioned Rs.300 mn for the project in the form of
infrastructure bonds. The loan was given in two tranches of Rs.150 mn each
at 15% interest each. Principal repayment was to begin from the eighth year
onwards.
SBI loaned Rs.300 mn to the project. Infrastructure Development Finance
Corporation (IDFC) had structured a “liquidity support” arrangement to help
SBI in emergency situation. This support enabled SBI to approach IDFC for
refinancing in case it failed to raise the money from other sources. For
IDFC, liquidity support was different from the take-out financing[7] since it
was lending on condition that the bank was unable to raise the money.
Moreover, IDFC would not take the project risk even if it lends to the bank.
IDFC would only be carrying the bank risk as it had given the money to the
bank and not the SPV.
REVENUE GENERATION
L&T pointed out that the project helped vehicles save fuel and vehicle
operating costs due to reduction of distance by 2.5 km and free flow
traffic, besides time. Other benefits to the bypass users included less
pollution, pleasant drive, good wayside amenities and lastly, safety.
More>>
TABLE I TOLL CHARGES FOR USING THE COIMBATORE BYPASS ROAD
TABLE II TOLL CHARGES FOR USING THE OLD ATHUPALAM BRIDGE
CHALLENGES
QUESTIONS FOR DISCUSSION
ADDITIONAL READINGS AND REFERENCES
[6] In the concession agreement
signed between MoST and L&T, the government allowed the project promoters to
bring down the equity to as low as 26% during the operational phase.
However, the financial institutions insisted that the equity dilution below
51% will be permitted only after full repayment of debt dues.
[7] A take-out financing agreement involves three parties – in this case,
IDFC, SBI (or a participating bank), and the project company. The debt funds
were provided by SBI for five years at the end of which SBI had the option
to either continue or call back the principal. IDFC at that point would
take-out SBI for the principal amount of the loan. The project companies
therefore were able to avail themselves of longer tenure funds of over 10
years. Banks could assume full credit risk, partial credit risk or no credit
risk in the initial period, with the variable being the interest premium. In
this structure, both the bank and the IDFC would be able to participate in
the credit risk for principal and interest respectively. This structure
could enhance the flow of investments from commercial banks to the
infrastructure projects. The other projects to be financed through takeout
financing were Bharati Telenet, and Narmada Bridge in Gujarat.
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