Project Financing 553In addition to the contractual arrangements between the parties, government may provide supplemental
counter guarantee to comfort the lenders. Traditionally the multilateral agencies like Asian Development
Bank (ADB) and International Finance Corporation (IFC), Washington, have been active in funding
infrastructure projects. For instance, IFC has financed CESC’s 250 MW coal-fired power station in Budge
and GVK Industries’ 235 MW gas-based, combined-cycle power station in Andhra Pradesh, India.
The ADB is a multinational development finance institution dedicated to fostering economic growth and
co-operation in the Asia–Pacific region, and to contributing to the economic development of its developing
member countries. It was established in 1966 with its headquarters in Manila, Philippines. The bank is an
infrastructure-oriented institution. The bank has financed the Bangkok Expressway in Thailand, Hopewell
power project in the Philippines, Port Qasim in Pakistan and Guangzhou power project in the Peoples Republic
of China among others. The bank provides both loan and equity capital.
Infrastructure funds like Global Power Investments of GE capital and Asian Infrastructure Fund have
come up to provide equity to infrastructure projects. The Asian Infrastructure Fund has been set up with
equity contributions from IFC, ADB, Peregrine Investment Holdings, Frank Russel Company and Soros
Fund Management. Export credit agencies finance imported equipment from reputed international suppliers
like General Electric, Asea Brown Boveri, Siemens, etc.Exhibit 27.4 Build–operate–transfer model
A. Identification and definition Preliminary feasibility study and tendering
B. Selection Bid evaluation and project award
C. Development of the project Form project company, negotiate
contracts and agreements
D. Financing Equity contribution from promoters,
financial closure
E. Actual construction
————————————————————
F. Completion Testing and acceptance
G. Operation Operation and maintenance
H. Transfer of assets to ————————————————————
the government
The syndicated credit market is an important source of project finance. Transactions with loan amount of
$750 million–$1 billion (Rs 3,450–4,600 crore) are not uncommon. A syndicated credit is one in which two
or more banks contract with a borrower to provide credit on common terms and conditions governed by a
common document. Syndicated loans are floating rate loans—the interest being reset after one, two, three, or
six months. The borrower chooses the interest rate reset period. One member of the group of banks (syndicate)
is appointed to act as the agent for the syndicate. The agent bank coordinates all negotiations, payments and
administration between the parties. A syndicated credit is usually of medium term maturity, i.e., 3–10 years;
although transactions with maturities ranging within 6 months–25 years could be arranged. Dual currency
loan, term loans, and stand-by letter of credit are some of the instruments in the syndicated credit market. Bank
loans have a number of disadvantages like short maturity, floating interest rate and restrictive loan covenants.
Insurance companies such as AIG provide both equity and debt to infrastructure projects. They can also
provide both subordinated and senior debt and can provide credit enhancement to make a non-investment
grade transaction an investment grade transaction. Some of the insurance companies manage emerging market
funds that contribute equity to projects in emerging markets.
Sometimes equity kickers, such as convertible debentures and stock warrants are also issued to allow
investors to share in the upside potential of the project while limiting downside risk.
Though small, the public bond market is also an important source of finance. Project bonds, unlike bank
loans, have longer maturity; carry fixed interest rate and less restrictive covenants.