Independent Power Producers

Innovative methods of Infra Financing

1Various methods of Infra financing ..Takeout FinanceFor banks and FIs to free their capital for projects with no construction phase risks.

Credit EnhancementFor infrastructure projects to tap the bond markets based on improved security mechanism thereby supporting projects with newer avenues of funds.

Tax-Free BondsLow Cost & Long-TenorCoupon fully Tax exempt

continuedGreen Bonds: To raise funds dedicated to climate-mitigation, adaptation, and other environment-friendly projects

Infra Bonds: Banks permitted to raise long-term funds for infrastructure lending

Infrastructure Debt Fund (IDF)4What is Infra Debt Fund(IDF)In Sept 2011, RBI issued guidelines for permitting Banks and NBFCs to set upIDFs in order to accelerate and enhance the flow of long term debt in infrastructure projects for funding the governments ambitious programme of infrastructure development.

Investors : Off shore Institutional Investor.Off Shore High Net worth Individuals (HNI) and NRIsDomestic Institutional investors , Retail Investors.

IDFs could be setup either as MFs or NBFCs. Legal Form: IDF-MF: as a Trust ;regulated by SEBIIDF-NBFC: as a Company ;regulated by RBI

5Parameter for setting up IDF 6Possible IDF-NBFC Structure

Possible IDF-MF Structure

MF vs. NBFCProjects IDF-NBFC/MF can invest. IDF-NBFC IDF-MFPost COD in existence of 1 year of satisfactory operation. Tripartite Agreement with the concessionaire and Project Authority for ensuring compulsory buyout with termination payment. RBI has recently allowed to invest without Tripartite Agreement.Credit Concentration Norms : To individual projects will be 50% of its total Capital Funds , additional 10% on board approval. RBI upon request permit additional exposure upto 15% (over 60% )

Can invest even in Grass root projects. Credit Concentration Norms :Not more than 30% of its net asset in any single infrastructure project, extended up to 50% with prior approval from Board.

10Advantages of IDF-MF over IDF-NBFCThe MF route effectively allow the investor to pool their resources across a range of infrastructure projects which may be under any stage of execution.

IDF-NBFC can fund upto 85% of project cost while IDF-MF can fund 100% provide credited concentration norms are not violated.

Capital required in case of IDF-NBFC is 15% of risk weighted assets. In case of IDF-MFs, as MF only issue units, there is flexibility in how much capital needs to be put in by Sponsors.

Disadvantage of IDF-MF ..continuedLimited access to overseas investors:

The funds will be limited to the rupee denominated units , resulting in credit risk to the investors who need to include the hedging cost in the calculations. Existing IDF summary List Name of Company / TrustRoute adopted (MF/NBFC)ICICI's InfradebtNBFCL&T IDFNBFCIIFCL's IDFMutual FundIL&FS IDFMutual Fund13 Alternative Investment Fund14

What is Alternative Investment Fund(AIF)AIF refers to any privately pooled investment fund(whether from Indian or foreign sources) in the form of a trust or a company or a Limited Liability Partnership(LLP)

AIF is of three type. AIF (Infra Funds) are under Category I.

15 Salient points of AIFInvestment & Exposure norms.AIF in allowed to invest in SPV or Holding companyInvestment NormsMinMaxUnlisted Securities (Unlisted Equity-Like CCD , PCD, OCPS, FCPS,CCPS etc not listed equity i.e share market)75%100%Listed / Unlisted Debt incl securitized Debt InstrumentAny other securities listed or otherwise0%25%Credit Concentration Norms Not more than 25% of corpus in single project17Advantages of AIF over IDF-MFAIF can invest entire fund in CCD / PCD / NCD/CCPS/OCPS; hence giving more option of the Investment Manager. Hence, higher return is expected from AIF in comparison to IDF.

Sponsor need to invest only Rs 5 cr (or 2.5% of fund whichever is lower) ; hence dependency on Sponsor is also less in starting the AIF

AIF don't fall under purview of SEBI Mutual Regulation, AIF regulation is lesser stringent. Less efforts are required for compliance point of view during operation period.

Disadvantage of AIF Regulators like PFRDA , EPFO don't allow investment in AIF.

Income Taxes rates are higher for AIF in comparison to IDF. (Government is reviewing to reduce the applicable tax rate)

19Existing AIF(Infra) summary List Name of Company / TrustIFCI Sycamore India Infra FundL&T Infra Investment PartnersSREI Alternative Investment TrustRudrabhishek Infrastructure TrustPiramal Infrastructure FundIndia Alternative Energy TrustIndia Infrastructure Fund IIArthveda Alternative Investment TrustNeev Fund20 Infrastructure Investment Trusts (InvITs) 21BackgroundSEBI issued final regulation on 26th Sep 2014

Structure

FrameworkSponsor to set up InvIT; not more than 3 sponsors Cumulative projects size INR 500 cr Issue size INR 250 cr InvIT to invest in projects either directly or through SPVs (at least 50% holding at SPV level) Investment in units of InvITs is allowed by resident as well as non-resident investors Minimum distribution = 90% of distributable cash flow of InvITs/ SPVs Minimum lock-in period for sponsors 3 years from the date of listing Investors to have right to remove the manager, trustee, request delisting, etc. Related party transactions to be on arms-length basis related investors not permitted to vote

Different category of InVITs