Since the turn of the century, infrastructure has been regarded as India’s bright spot and has played a crucial role in the country’s emergence as one of the fastest growing economies. The public-private partnership model has helped attract both domestic and foreign investment, thereby boosting the economy. Financing infrastructure projects in India is difficult due to the asset-liability mismatch in banks and non-banking financial institutions, as well as sector-specific restrictions. India requires infrastructure long-term investments that provide economic returns in addition to monetary returns. In this regard, the new development financial institution, National Bank for Financing Infrastructure and Development, has created favourable conditions for quickly raising leverage debt.
IPO frenzy
Following a spurt in global initial public offering (IPO) activity in recent months, Indian markets have reached new highs. India’s IPO situation is not as dire as the global scenario, with 16 companies raising Rs 409 billion in IPOs in the first five months of 2022, a 41 per cent increase over the same period in 2021. However, IPOs in the infrastructure space continued to be muted apart from GR Infraprojects, which made a strong market debut with its IPO that was subscribed 102.58 times in July 2021. Delhivery became the first unicorn to gain regulatory approval to list on the domestic bourses in 2022. The company was able to raise around Rs 24 billion through its IPO in May 2022. Besides, there are a host of companies with public issues on the anvil.
- Inox Green Energy Services Limited’s board approved a proposal to raise Rs 9 billion through an IPO. Later, the ancillary of Inox Wind listed fresh preliminary papers to raise Rs 7.4 billion instead.
- As of July 2022, Sterlite Power Transmission Limited was awaiting favourable market conditions for launching a planned IPO of Rs 12.5 billion. During the same month, Go First announced the likelihood of raising money through an IPO due to stressed financials following the pandemic.
Overhaul of infrastructure financing via InvITs
Indian infrastructure has had a few triumphs and several setbacks. By 2013, the government had made its objective clear – to develop a framework to attract long-term foreign private finance in the infrastructure sector. At the threshold, three crucial elements were discovered to make the investment proposition profitable — tax-optimal regular distributions, a diversified risk portfolio and a well-regulated, transparent investing platform. The Securities and Exchange Board of India (SEBI) conceived infrastructure investment trusts (InvITs) to meet the criteria. There are 18 InvITs registered with SEBI. Bharat Highways InvIT, sponsored by GR Infraprojects, is the most recently registered InvIT.
- The National Highways Authority of India (NHAI) is planning to raise up to Rs 40 billion for its InvIT, by forming a new special purpose vehicle under the trust structure.
- The Ministry of Railways (MoR) is planning to monetise the redeveloped stations through real estate investment trusts. While the target for 2022-23 is close to Rs 300 billion, the MoR is planning to offer assets in smaller tranches.
- Virescent Renewable Energy Trust (VRET) raised Rs 10 billion in non-convertible debentures (NCD) in its debut issuance, which was split into three tranches of three, five, and seven years.
Bond market
Infrastructure bonds have accounted for about 25 per cent of issuances in the overall corporate bond market (cumulative issuance of Rs 8.3 trillion during 2016-17 up to the first half of 2021-22). Public sector entities, such as NHAI, NTPC Limited, NHPC Limited and Powergrid account for almost 50 per cent of infrastructure bond issuances, whereas private sector issuances are well diversified across issuers and sectors. The increase in private sector issuances in 2020-21 was driven by large issuances from Reliance Jio.
- In January 2022, the Indian Railway Finance Corporation raised $500 million and India Clean Energy Holdings raised $400 million through green bonds. In the same month, the New Development Bank successfully issued CNY 3 billion worth of RMB-denominated bonds in the China Interbank Bond Market, while Reliance Industries Limited repurchased around Rs 40 billion worth of local bonds from its investors.
- Avaada Energy raised Rs 14.4 billion in green bonds in the Indian capital market, making it the country’s largest AAA-rated green bond by any renewable energy developer.
- Greenko Wind raised $750 million for an energy storage plant in Andhra Pradesh through a global bond offering.
- In May 2022, the Power Finance Corporation Limited listed its maiden Euro 300 million green bonds on the Luxembourg Stock Exchange.
- Delhi International Airport Limited issued NCDs worth Rs 10 billion to part finance Phase 3A of the Delhi airport expansion project.
Multilateral funding
- The Asian Development Bank (ADB) has been a crucial lender to infrastructure projects in India. In 2021, ADB committed an amount of approximately $40,080 million to infrastructure projects in India for sectors including energy, transport, water and other urban infrastructure and services.
- In March 2022, the Japan International Cooperation Agency signed loan agreements with the Government of India to grant Japanese ODA loans of up to JPY 250 billion for four infrastructure projects spanning across sectors such as roads, railways and water.
- In June 2022, the World Bank authorised a $750 million development policy loan to the Indian government to promote reforms that leverage private sector investment in infrastructure, small businesses and green finance markets.
Other key developments
- The Central Board of Direct Taxes (CBDT) has approved CPP Investments, Qatar Holding LLC, among others as eligible for income tax relief on investments made in India.
- In September 2021, the India Resurgence Fund, a joint venture between Piramal Enterprises and Bain Capital Credit, invested $75 million (or Rs 5.55 billion) in Thrissur Expressway Limited (TEL), part of KMC Constructions Limited, for the restructuring of TEL’s existing debt and for last-mile financing to enable project completion.
- The State Bank of India sold KSK Mahanadi Power Company’s non-performing loan account to Aditya Birla Asset Reconstruction Company Limited for Rs 16.22 billion, accepting a haircut of nearly 58 per cent against the total outstanding loans.
