Bangalore Metro looks to restart bidding for land parcel3 min read . Updated: 22 Sep 2014, 11:54 PM IST
Bangalore Metro to also borrow money from lenders, sell bonds to raise money for second phase of network
Bangalore: The company tasked with building and operating Bangalore Metro rail is looking to restart bidding for a land parcel it owns, borrow money from German and French lenders and sell bonds to raise the 26,405 crore it expects to spend on the second phase of the network.
Bangalore Metro Rail Corp. Ltd (BMRCL) is looking to get the money upfront from bidders for the land it owns in the city rather than stretch the payments along the tenure of the concession, said M. Naveen Kumar, director of finance. BMRCL’s general manager, finance Vasanth Rao said details on whether how much money they ask upfront depends on several factors like the size of the plot, the location of the plot and market factors that have not been decided yet. The concession size could range from 30 to 50 years, he said.
“That land is currently being used for parking, which is not really fetching us revenue," Kumar said. Tenders for the land—1.4 million square feet—are likely to be issued in a month, he said.
The proposal from the German development bank KFW, which has shown interest in providing a loan to BMRCL, is with the central government’s department of economic affairs, which must clear all proposals where a foreign bank lends to an Indian company. French development bank Agence Francaise de Developpement, or AFD, has also indicated its interest in granting a loan of about €500 million to the project, Kumar said.
Phase two of the Metro will cover 72 km with 61 stations. The first phase of the metro, covering some 42 km, was built at a cost of 13,000 crore. Of the planned 42 km, 17 km in two stretches are operational. Last week, Karnataka chief minister Siddaramaiah set a 300-day deadline for completing the pending work on phase one.
About 45% of the approved cost of 26,000 crore for phase two of the Metro will come from debt, according to Kumar, of which he expects 8,000 crore from development bank loans. He expects to raise about 1,500 crore from the bond market.
BMRCL has already received approvals for raising 1,500 crore through the sale of bonds.The company will test the market by trying to raise 300 crore first, Kumar said. He said BMRCL was in touch with advisors “virtually daily" to see when the company could approach the bond market.
Kumar said the Japan International Cooperation Agency was offering a loan whose disbursement was tied to Bangalore Metro giving a portion of its business to Japanese companies—a proposal BMRCL is not keen on.
“We are not in favour of that because it vitiates the bidding process," Kumar said.
“Raising money through the bond market would certainly be an innovative move for a Metro system in India. But it’s important to try and think through how this would work," said Ashwin Prabhu, manager, urban transport for EMBARQ India, a not-for-profit organization that works in the area of sustainable transport, among other things. “There are only two reasons an investor would buy these bonds. The first is if they think the financial future of the metro system is bright, and the bonds would be easily repaid through future profits. However, this is very unlikely to materialize unless the Metro is able to develop robust alternate non-fare revenue streams through, for example, real estate development. The second reason is if the investor believes these bonds have the implicit sovereign guarantee of the government of Karnataka. In this case, the bonds simply act as a ‘delayed’ subsidy from the government, which will eventually have to cover the bond repayment," he said.