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Highway Developers Seek Easier Funds


By ugesh sarkar, Section Finance & Taxes
Posted on Sun Jun 28, 2009 at 10:22:22 PM EST

Infrastructure companies involved in road building are banking on the union minister for Road Transport and Highways, Kamal Nath's proposal to set up a Road Finance Corporation (RFC) to fund construction work.

V D Mhaiskar, chairman and managing director, IRB Infrastructure Developers, said the proposal was a welcome step that would help fund the long-term needs of developers. Meanwhile, according to reports, RFC would have an initial corpus of Rs 500 crore.

Detailing the wish list of the sector, Mhaiskar said developers were looking forward to relaxation of the norms for external commercial borrowings (ECBs) to refinance and retire high-cost funds of build-operate-and-transfer projects in the long run.

Now, ECBs are permissible only for new projects. Mhaiskar said extending this facility to completed projects would help retire high-cost funds and also scale down the debt exposure of public sector banks. The funds released could be used for new projects.

Conceding that the projects backlog was growing thanks to the model concession agreement taking time to be formulated, Mhaiskar said it was equally important for developers to raise their capacity to meet demand.

Though funding was improving, the benchmark prime lending rate was still 12 per cent. For infrastructure projects, it should be below 10 per cent, especially when inflation was negative, he said.

Another important issue that infrastructure players want resolved is the interpretation of the "assignment of toll rights" by bankers.

Mhaiskar said some banks tend to classify the rights as intangible assets (more so because their auditors categorised them that way). As a result, the extent of borrowings reduced as it was treated on a par with unsecured loans.

The assignment of toll rights come under a statute of Parliament (National Highways Authority of India Act) and is assigned to developers. Therefore, the rights should be classified as a tangible entity to qualify developers to seek long-term funding.

This could be done by the Finance Ministry issuing a clarification or note to the Reserve Bank of India, Mhaiskar added.

Source: Realty Plus Highway developers seek easier funds

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