Feature

Can Infra Firms Regain The Trust? - Part 2

Will investment trusts put an end to the funding woes of infrastructure companies?

IRB currently has 18 BOT (build, operate and transfer) road projects counting up to 2,070 km with a total investment of Rs.28,300 crore. Of these, 13 projects are operational, and five are under construction. The company’s InvIT will house six NHAI road projects and spread across six states, employing equity and sub-debt of Rs.2,600 crore and debt of close to Rs.3,300 crore (see: Road runner). These six projects generated close to Rs.1,000 crore in revenues in FY16. IRB’s issue comprises a fresh issue of shares to raise Rs.4,300 crore. A chunk of the proceeds is earmarked for issuing fresh debt to the project SPVs so that they can prepay entirely or make partial repayment of money to its lenders. This also includes repayment of loan taken by the SPVs from the parent (sponsor) IRB Infrastructure. 

Anshu Kapoor, Head private wealth management, Edelweiss Global Wealth ManagementThe debt of the six projects will get transferred to the books of IRB’s trust and thus bring down the overall debt at the parent level. The listed parent has a leverage of Rs.14,000 crore with a debt-to-equity ratio of 2.8 times as on FY16. Post the float, the ratio is expected to shrink to 1.7 times, besides resulting in savings on interest. In FY16, the company incurred interest charges of around Rs.1,063 crore. Even assuming an interest rate of 10%, a reduction of Rs.4,500-5,000 crore in the overall debt will result in Rs.500 crore interest savings for the company.

Yet another issue slated to hit the market soon is from Sterlite Power Grid Ventures, which is floating an InvIT named India Grid Trust to raise Rs.2,650 crore. The company has got about 10 interstate power transmission projects having a capacity of 6,767 circuit km. As of FY16, the company had a debt of Rs.44,500 crore on an equity of Rs.16,328 crore in FY16. It is quite obvious that with the investment in assets that have a long gestation period, the initial years are difficult in terms of servicing the debt and interest cost. In FY16, the company incurred a finance cost of Rs.3,830 crore on an opera

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