Project Financing - A Case study on

Coimbatore Bypass Road Project

Dr.Hiren Maniar

GROUP - 8
RANJITH K | VIGNESH S | SRI SHARAN M
 1. Discuss the implications of the state government’s poor support to the project, on the
future investment in the concerned state? Give reasons.
 Contractors would be reluctant to come forward to take up such projects in
future because of lack of support provided by the government to L&T.
 Future contractors could not avail bank loans easily, since there was a high
chance of L&T not paying SBI loan on time and the banks becoming
conservative.
 Contractors in future might ask for the overall control of the projects to take
actions against non-compliance from the stakeholders after seeing the
struggles of L&T.
 Future contractors would also also under tremendous pressure from the
financial institutions, which lend money, to create additional securities.
 Tamil Nadu government would be asked by the future contractors to bear the
losses, if any.
 Government and contractors might want to have the clarity in future in resolving
the unanticipated problems like non-payment of toll by private trucks.
 Construction and maintenance of city roads would be ignored in toll-based road
development concept, since the willingness to pay toll in city roads is nil and
the homework is more to identify various user segments.

2. What is the role of innovative financial instruments like takeout financing in the
infrastructure sector?
Infrastructure financing can present challenges owing to the nature of infrastructure assets.
The following are some common characteristics of infrastructure assets that differentiate
them from other assets:

 Capital intensity and longevity

 Economies of scale and externalities
 Heterogeneity, complexity and presence of a large number of parties
 Opaqueness
Banks are giving the finance but that is not sufficient. You need to have different instruments,
that is exactly where financial institutions come into picture. Some of the instruments provided
by these institutions are:
Credit Enhancement – Better rating for infrastructure projects, effective in mobilization of
long term debt, freeing up of bank’s capital as well as exposure, development of bond markets.
Infrastructure debt fund - The Infrastructure Debt Funds are meant to infuse funds into the
infrastructure sector. IDF is an emerging investment vehicle which as per regulations can be
created in the form of Mutual Fund or NBFC to invest in the infrastructure sector
Infrastructure investment trusts - Often, infrastructure projects such as roads or highways
take some time to generate steady cash flows. Meanwhile, the infrastructure company has to
pay interest to banks for the loans taken by it. An InvIT essentially gives the company the
leeway to fulfil its debt obligations quickly.
Securitization and asset backed securities - Infrastructure assets such as roads, power
transmission and airports are best-suited for securitisation compared with other corporate
assets given their stable cash flows backed by long-tenure concession agreements and
higher recovery rates.
Other instruments include green bonds, take out financing and liquidity support.