In order to attract long-term funds to infrastructure projects, the finance ministry is ready to invest infrastructure debt funds (IDFs) to refinance bank loans to such projects the facility of first charge on escrow accounts of terminated projects.
The new model tripartite agreement (for road projects) formed among the National Highways Authority of India, the road builder (concessionaire) and IDFs also gives on these funds the title of “senior lender” and gives them all rights and privileges as enjoyed by the lead bank. This tripartite agreement is based on the model concession agreements for National Highways and State Highways respectively.
“The Concessionaire had raised debt from the Senior Lenders for financing the Project and had utilised the same for the purposes of the Project,” a finance ministry notification said. Senior Lenders refer to the financial institutions, banks, multilateral lending agencies, trusts, funds and agents or trustees of debenture holders.
According to the finance ministry, bonds issued by a concessionaire to an IDF to raise funds for a project must be redeemed well in advance of the completion of the concession period—half the amount after completion of 75% of the period, three-fourths by 85% and the remainder no later than two years before the concession period expires.
The moves are aimed at encouraging banks and financial institutions to launch IDFs, which are expected to play a key role in addressing the asset-liability mismatch between available bank funds and road projects where funding is required for long periods, as much as 25 years in some cases. IDFs help free up bank funding for newer projects.
The notification further added, “The authority (NHAI) shall, instead of depositing the termination payment in the escrow account of the project, redeem the bonds by making payments due and payable to the debt fund, and the balance, if any, shall be paid into the escrow account.”
The tenure, interest rate and other commercial terms of bonds must be determined by mutual agreement between the IDF and the concessionaire. The bonds must be in denomination of Rs 1 lakh each or up to Rs 10,000 each. The IDF and the concessionaire may allocate and bear the foreign exchange risks on bonds sold overseas.
“Any delay in repayment of principal or interest for and in respect of the bonds shall attract interest at a rate of 3% above the rate of interest applicable for the bonds,” the notification said.
IDFs can sell off bonds of the concessionaire to any other person without any notice if these are listed in any recognised stock exchange. IDFs can also extend a term loan to the concessionaire for an amount not exceeding 50% of its total exposure to the concessionaire and such a loan will be treated like a bond.
The tripartite agreement will cease if the company opts for early bond redemption.