New Delhi: India Infrastructure Finance Co. Ltd, or IIFCL, is offering a new debt facility that could help highly leveraged infrastructure companies continue bidding for new projects, said a company official on condition of anonymity.
Under the new facility—called subordinated debt— IIFCL would finance up to 50% of the equity of the project. The company would make the funds available at 2-3% above the prime lending rate, which refers to the rate at which banks lend to their best customers. The State Bank of India’s prime lending rate is currently 12.25%.
The official said IIFCL would only have second charge on the debt, meaning if the project failed and assets were to be sold off, IIFCL’s dues would only be cleared after assets were sold and other dues cleared. Companies will not have to start repaying the debt until seven years after completing construction of the project. The debt will be offered against project security, the official said.
“It (offering subordinated debt) was approved last month. We will be sending the details to project appraisers within two weeks,” the same official said.
Developers say that subordinated debt would help companies especially at a time when equity investors are drying up. “From an equity point of view, if I, as a promoter, am comfortable with the project, then no matter what you do, it (subordinated debt) will be cheaper than an equity investor,” said Ankineedu Maganti, a director with Hyderabad-based Soma Enterprise Ltd, which hasinterests in highways and the power sector.