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March 19, 2013 Monish Shah
Senior Director Senior Director
Financial Services
Too much good money chasing few good projects
Sr. No External rating % in ICRA Rated
Companies
% in Crisil Rated
Companies
1 LAAA/AAA 2.88% 8.33%
2 LAA/AA 6.73% 11.76%
3 LA/A 23.55% 9.8%
Total 33.16% 29.89%
4 LBBB/BBB 37.5% 24.51%
5 LBB/BB 17.30% 22.05%
6 LB/B 5.28% 9.31%
Total 60.08% 55.87%
7 Below LB/B 6.73% 14.21%
Total
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Note: 204 companies rated by Crisil in Infrastructure sector and 208 companies rated by ICRA in the infrastructure sector
Key observations:
1. Over 70% of rated projects have rating below BBB
2. The market portfolio has around 10% projects with ratings under B
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There is a risk appetite for each type of riskshowever the financing needs
vary as do the right investor sets
Banks / Retail
????
30 years
????
Insurance / Cap. Markets
Average Life (Years)
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Initial
Capex
Losses
Principal Repayment
Year -3 0 2 5 10 14 18 25
Stakeholders need to mesh their interests to ensure that their disparate
needs and risks are adequately covered
Banks
Sponsors
Financial Risk
Credit/Security
Documents
Suppliers
Offtakers
Market Risk
Supply Agreement
Shareholders
Agreement
Offtakers
OfftakeAgreement
Construction & Operational Risk
O&M Contract
Legal & Regulatory Risk
Consent/Permits
Project Vehicle Project Vehicle
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Contractor
Operator
EPC Contract
Local Laws
Government
Consent/Permits
Concession Agreement
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There is a inherent demand for Finance, but the price to play needs to be
managed
The financing needs for infrastructure projects in India far
exceed the Government resources
Despite high liquidity in the India, adequate funds are not
Realities and Key Challenges
Feedback from Financiers
Willing to take on risks if appropriately
priced, managed and mitigated
Willing / May require to transfer the
p g q y q
directed towards development projects as a result of
perceived political risk or credit risk
Banks are not always very keen to fund large infra projects
as the long term nature of financing exposes them to ALM
risks and limitations owing to CRR and SLR requirements
The lack of a vibrant long term corporate debt market to
match the investment requirements of return and liquidity
limits the debt financing options
There are gaps in medium and long-term credit insurance,
insuranceagainst terrorismandpolitical violence and
Willing / May require to transfer the
risks to third party by sub-contract or
insurance for a price
Willing to accept the financial
consequences of the risk, provided a
premium is there for taking on that risk
Unwilling to take on a particular risk,
when the risk is not within its control
Willing to view the project as a whole
thereby willingto accept higher risks in
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insurance against terrorism and political violence, and
insurance against other risks associated with long term
infrastructure projects
Innovative measures such as credit enhancement of long-
term bonds would provide the required support to
infrastructure firms and provide investment avenues for
Insurance and possibly Pension funds.
Multilateral Banks including ADB / BRICS? along with other
agencies extend support to infra financing
thereby willing to accept higher risks in
certain areas if balanced by lesser risks
in others
Subject to Prudential and group
exposure norms
Land Acquisition and default rates are a
concern