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December 14, 2018

Bullet bonds, co-obligor structures attracting investments in infrastructure

Opening up capital market investments in infrastructure

 

The infrastructure requirements of the Indian economy are huge. CRISIL estimates that investments of over Rs 55 lakh crore are needed in the infrastructure sector over the five fiscals through 2023. The development of the corporate bond market for the infrastructure segment is imperative for funding its investment needs. Infrastructure projects are also exploring opportunities to tap the capital market to diversify their funding sources.

 

For attracting funding from a segment of the debt market investors who have an appetite for lower tenure instruments, issuers in the infrastructure space are increasingly aligning their debt instruments to meet these investor requirements. This is achieved by issuing lower tenure bonds with bullet repayment, which can be refinanced comfortably on the back of the long life and stable cash flow-generating ability of the underlying assets. Pooling of cash flows of multiple projects through co-obligor structures are also being undertaken to provide portfolio diversification benefits to investors.

 

These measures can help infrastructure developers refinance their construction loans through capital market issuances, thus freeing up bank capital for funding new projects. Such mechanisms for attracting capital market investments can go a long way in ensuring adequate resources for infrastructure development in the country.