Rate highrise obscures core view

NEW DELHI; The infrastructure sector is feeling the heat of rising interest rates. The private sector seems to be going slow in executing projects in the infrastructure space owing to lack of affordable finance.

India Infrastructure Finance Company (IIFCL), the government-owned SPV set up to finance core sector projects undertaken on public-private partnership (PPP) basis, has seen 50% drop in the number of projects seeking finance in the past couple of months.

“There has been a slowdown in the number of projects seeking financial assistance. In April, for instance, we had only three cases,” IIFCL CMD SS Kohli said. About six months ago, credit was being offered at nearly 9.75% while in the past couple of months, credit is being offered at 11.5% and more, Mr Kohli said.

Given that IIFCL was receiving proposals from developers of 7-8 infrastructure projects every month after it began operations in January last year, the fall to a mere three cases now represents a decline of over 50%.

“High interest rates is definitely one of the reasons for the slowdown in the number of infrastructure projects being taken up by the private sector. Six months ago, rates were much lower than what they are today,” Gammon India’s Umesh Gupta said.

Banks offer loans for infrastructure projects at sub-prime lending rates, which according to current rates works out to 10-12%.“The slowdown is because developers are exploring alternate methods of raising debt in the face of rising domestic interest rates. The overseas market is increasingly being viewed as a viable option to raise cheap funds, for instance. However, the slowdown is only temporary and it will pick up soon,” PwC executive director Amrit Pandurangi said.

IIFCL, on its part, lends to eligible projects after a lead bank provides majority of the finance for the particular project. “As of now, IIFCL is providing funds at the same rate at which the lead bank offers money for the project. The company is expected to play a larger role in due course by providing finance at more concessional terms as well as to provide longer tenor funds,” Mr Pandurangi said.