Infrastructure needs a lot more sponsors

Last month a colleague travelled to a Tier-III town to cremate his father. Tragic, but inevitable. The horrific part of the journey was that from the time he landed early morning at the town, the family waited outside the crematorium for 21 hours in a queue for the single electric-fired unit for the district.

On a far less sombre note the commuters of the Delhi-Gurgaon road would face fewer delays every morning and evening as the IDFC has taken over the management of the toll road. The challenges on the ground remain, but the changes would come from the formidable problem solution capacity that Rajiv Lall-led team have built up.

At a more macro level January closed out with two more promising events. The cabinet committee on investments met to clear up a clutch of oil exploration projects held up because the oil and defence ministries cannot see eye to eye on them for ten years. The committee gave them one month lead to solve the jam.

Significantly the cabinet secretary too had given them a month's time to do the same, again a month ago. Obviously even that office has reached the limits of its interventions.

The other is the coming together of the regulators to make the corporate bond markets work. An India Ratings analysis shows 59 per cent of the infrastructure projects in the country have ratings of BBB+ or less so no banks will buy their debt. The universe of triple A or AA- makes up just 4 per cent in terms of volume. These are hassles that have pretty much nothing to do with environment clearances but are simply the impact of low sponsor support. This is the new kid on the block, the Fitch Group company's analysis shows. In calendar 2012, 50 per cent of the projects needed sponsor support to bridge their deficiency in cash flows to meet their debt requirements.

Those affected were not chicken feed as the withdrawal of GVK and GMR from at least one each of their road projects show. Since equity rarely comes to such projects, the pressure on the sponsor company to provide cash impacts their other sectors too. An interest rate cut helps, but given that costs had risen by upto 300 basis points for many of these in the past three years, a 25 basis point reduction just keeps the projects alive.

In such a scenario how many of such projects can an IDFC take over in a country with a $1 trillion infrastructure deficit, including crematoriums not built?

Subhomoy is a Deputy Editor based in New Delhi.

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