Road developers turn to underwriting for faster financial closure  

April 1, 2010

With the National Highways Authority of India (NHAI) insisting on financial closure of existing projects—or at least a financial assurance for these projects—road developers are looking at banks to underwrite or syndicate debts for their projects. Bankers too seem more than happy to do so.

“We could see more (underwriting) for them (road projects) in FY11, especially with more and more projects coming up and with NHAI coming up with new bidding norms,” said Ashish Chandak, executive director- infrastructure banking (corporate finance), Yes Bank. A similar trend has been observed by two other bankers, who requested anonymity.

In the underwriting or syndication process, a bank underwrites the entire debt for a certain project, for a certain fee. The bank then seeks funds from other banks for the debt. This helps the developer tie up funds for projects easily and thus enables work on a project to move along at a faster pace.

Hindustan Construction Company (HCC) and Gammon Infrastructure Projects Ltd (GIPL) are two such road companies who are in favour of underwriting. “We are surely open to the option of underwriting,” said Parvez Umrigar, managing director, GIPL.

Praveen Sood, CFO, HCC, had stated last week, “We are looking for underwriters. A number of banks have shown interest in underwriting our projects. We have almost finalised the bank for one of our projects, which we would be announcing in a couple of days.”

However, there are companies like IRB Infrastructure who still prefer the traditional method of financial closure. The road development company announced financial closures for all three projects it was working on. “We are not looking for underwriting, we would be achieving financial closure for our three road projects in this month through the normal procedure,” V Mhaiskar, managing director, IRB Infrastructure, had told Moneylife last week.

While underwriting is surely a lucrative option for road companies to enable them to bid for more projects, banks too are looking at the brighter side of such ventures. “If it is a good project, the banker is happy to get the extra amount in the form of an underwriting fee,” stated Mr Chandak.

“We have received very good response from banks,” stated Mr Sood. According to sources, Axis Bank, United Bank of India and Bank of Baroda are among the other banks interested in the underwriting process. — Amritha Pillay