Iazdis

Fiaasnce

CREDIT POLICY 2012 -

India Infrastructure
Finance Company Ltd

Credit Deptt.
IIFCL
(A Government of India Enterprise)
New Delhi
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Company Limited
IIFCL

Executive Summary
_ -
74
The Credit Policy provides the necessary guidelines to cover advances extended to
borrowers /proposed borrowers under the provisions of SIFTI and guidelines of RBI and
in handling credit related matters.

The objectives of credit policy are:

1. To build and support qualitative growth of the asset portfolio.
2. Application of the state of the art credit appraisal tools and techniques to evaluate
infrastructure projects.
3. To institute due diligence for mitigating level of credit risks and improve credit quality.
4. To have the broad basing of the sectoral exposure to address the needs of all the
eligible infrastructure sectors.

The focus of the credit policy is towards systematic standardization of the framework of
the processes, procedures and controls specific to the credit function. It also aims to put in
place a system for undertaking due diligence appraisal and sensitivity analysis to access
the viability of the project by evaluating technical feasibility- financial viability- bankability
(identifying the risk and instituting suitable risk mitigation measures).

The Policy has been structured in two Sections containing 23 Chapters and Annexure.
Section 1 comprises the policy standards and norms captured in the first 12 Chapters.
Section 2 addresses the framework of appraisal, processes and specifications dealt in the
remaining 11 Chapters.

The scope and objectives of the policy focuses on the competitive approach in pricing with
regard to the nature of risk, rating of the accounts, cost of funds, cost of services, operating
cost and market forces.

Chapters 1 and 2 deal with the overall framework under which IIFCL operates. These
chapters explain the definitions under SIFTI and elaborate the role for Public Private
Partnership (PPPs) as a means for harnessing private sector investment and operational
efficiencies in the provision of public assets and services.

Chapter 3 relates to the exposure norms as per Reserve Bank of India (RBI) guidelines
applicable to NBFC-IFCs. Accordingly, IIFCL can have maximum of 25% of its NOF to any
single borrower and 40% of its NOF to any promoter group.

Chapter 4 discusses the RBI prudential norms as applicable to NBFC-IFCs notified in RBI
circular No. DNBS-193/ DG (VL)-2007 - dated February22, 2007 with risk weight
provisions.
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Chapter 5 lays emphasis on the credit rating. IIFCL follows the risk assessment and rating
appraisal using risk assessment model procured from CRISIL. The credit risk rating
analysis is carried out both objectively and subjectively based on various parameters,
judgments and industry trends followed by prudential guidelines applicable to NBFC-
IFCs. The policy stipulates that IIFCL shall follow the lower credit rating in case of the
conflict between the external rating and internal rating.

Chapter 6 lays emphasis on risk and pricing of the credit product with full detail. The
whole exercise of identification/ allocation/ mitigation of risk at the stage of the appraisal
is done by way of due diligence. Promoter risk/ regulatory and policy risk/ financial risk/
completion/ execution / maintenance/ operational risk and also the business risk have
been explained in detail. Various risk factors and mitigates under the power and road
sector have also been explained to achieve the desired level of quality infrastructure
projects.

Under the direct lending IIFCL links its interest rate with that of Lead Bank/ Institution.

IIFCL will also have its own benchmark rate which shall be determined on the basis of
considering the average cost of funds including administrative cost, average return on net
worth and cost of guarantee fees which risk management department/ resources and
treasury department will determine/ review on quarterly basis and apprise the credit
department.

The factors which the credit department will take into account for fixing the price will
include credit rating, tenure of the facility with reset clause, aligning to the competitive
scenario, spread in terms of cost of funds, consistent track record and association with the
banks and lenders, credit worthiness of the company/group, availability of liquidity and
possibility of its deployment at the market rate.

IIFCL will not charge the rate of interest less than its benchmark rate as laid down in the
policy under direct lending and minimum indicative pricing under the Takeout Finance
Scheme, which is not discretionary and non-discriminatory.

At the time of the annual review if the account is rated upward, the benefit of rate would
go the borrower and in the event of downward rating, the borrower will have to pay higher
interest.
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The rate of interest will be reviewed sector wise depending upon the market dynamics.
Interest rate reset, penal rate of interest, processing charges, pre-payment charge,
commitment charge and annual review charges, including waiver of pre- payment/
processing/ commitment and review charges have been explained in detail.

Chapter 7 is related to direct lending under consortium. Under the SIFTI, IIFCL shall
participate under consortium arrangement only and exclusively and consider the funding
to the extent specified in the SIFTI.

IIFCL shall undertake the project for detailed appraisal after getting its in-principle
approval by New Business Committee.

The focus of appraisal through due diligence involves the evaluation of technical feasibility
/financial viability/ commercial viability/ managerial competency/ environmental
concern and economic viability). It also deals with appointment of LIE/ LIA/ LLC. The
policy also details about the scope of work under different phases.

Phase I from commencement date till financial closure.

Phase II from financial closure till 2 months after COD.
Phase III from annual operational review.

This chapter also deals with scope of work in relation to project documentation/ financing
and security documents.

IIFCL will accept projects appraisal done under direct lending by reputed appraising
institutions and Lead Bank capturing the terms and conditions under the various heads in
particular credit facilities, security, rate of interest, tenor including repayment programme
and insurance. Pre- disbursement and post- disbursement conditions have been adequately
captured also focusing environmental and social safeguard assessment.

Chapter 8 discuss Takeout Finance Scheme as revised by Ministry of Finance.

The policy proposes the constitution of the Executive Committee (EC) consisting of all the
CGMs of the Head Office- IIFCL, Executive Director (ED) and Chairman and Managing
Director (CMD) having the power to sanction loan upto Rs. 200.00 crore without any
deviation from the scheme and then put up to the Board for information. The EC will meet
periodically as and when required.
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Firmmu.
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Refinance and Credit Enhancement have been discussed in Chapter 9 and Chapter 10
respectively.

Restructuring of Accounts with CDR mechanism have been discussed in Chapter 11. The
features which have been specially mentioned that restructuring cannot be done with
retrospective effect and it should not be a repeated restructuring.

Chapter 12 deals with Pooled Municipal Debt Obligations (PMDO).

Chapter 13 emphasis on the pre sanctions credit process giving details over the feasibility
of projections/ estimates in terms of cost, sales and profit. Promoters' contribution by way
of equity showing the reasonable stake in and commitment to the project have been
elaborately detailed in the policy. The equity by promoters is assessed and ensured it is
infused into the project by the following funds flow observing the project before the COD.
• Equity from internal accruals
• Quasi equity through structured products like sub debt
• Partly convertible debentures
• Resources raising by private equity and strategic investors and IPOs.

Chapter 14 discusses the composition and functions of the New Business Committee (NBC)
and Chapter 15 relates to the Credit Appraisal Grid (CAG) which will evaluate the risk
factors of the credit proposals.

Chapter 16 relates to financial analysis focusing on profitability ratios, rate of return ratios,
DSCR ratios and detailed method for cash flow available for debt services. Financial
appraisal of the project in terms of Net Present value (NPV) and IRR is emphasized;
discounted cash flow techniques are also discussed in the policy to evaluate the decision
process. Internal Rate of Return (IRR) analysis is discussed in detail.

As the revenue from the project would largely depend on the tariff or toll that the project
would be allowed to charge and the volume of traffic that the project is expected to cater to,
traffic study becomes critical to projections of revenue in a project. Chapter 17 discusses the
guiding policy to decide the toll rate or tariff in respect of a project.

Chapter 18 deals with Letters of Comfort and Chapter 19 lays down the delegation of
powers for effective administrative control.
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Documentation in detail is discussed in Chapter 20

with focus on Project documents,
Finance documents, Inter- Creditor Agreement and also the Trust and Retention
Agreement. The policy also details sector specific documents required.

Chapter 21
presents the monitoring, supervision and follow up giving the full details of the
various stages including the compliance regarding pre- commitment conditions/ covenants
of lenders and compliance regarding pre-disbursement conditions and covenants of
lenders. It also discusses compliance of other conditions of the lenders during construction

1
phase and also the post construction phase. Reports of external agencies like TRA/ LIE /
Consultants/ Auditors have also been discussed in detail. The policy also stipulates that all
sanction accounts shall be reviewed annually and review note shall be submitted to the
Board.

Special Mention Accounts (SMAs) has been put in the credit policy under
Chapter 22.
Based on the RBI guidelines the concept of weak accounts was introduced to capture early
warning signals in the Borrower's accounts.

Checklist for regional offices with regard to road and power sector has also been captured
under Chapter 23.
I
Annexures
with structured formats for the various processes, statement to be submitted to
the Ministry/ Regulator have also been captured in the credit policy.

The policy also prescribes that IIFCL may also not consider fresh loans to groups which
regularly delay the payment of interest and principal.

Modification/ Chan ge

The Board of IIFCL may consider any changes and modifications in credit policy as and
when required.
 INDEX
Sl. No. Contents Page
Scope & Objective of Policy 1
Strategy techniques target/ Business Plan 7
Section -1
1 Definitions under SIFTI (Revised) 9
2 Definitions and elements of PPP Projects 12
in Infrastructure
3 Exposure norms 17
4 RBI Prudential Norms 20
5 Credit Rating 29
6 Risk and Pricing 34
7 Direct Lending under Consortium 51
8 Takeout Finance Scheme (Revised) 70
9 Refinance 77
10 Credit Enhancement 80
11 Restructuring of Account 84
12 Pooled Municipal Debt Obligation 90
(PMDO)
Section -2
13 Pre sanction credit process 93
14 New Business Committee 108
15 Credit Appraisal Grid (CAG) 110
16 Financial Analysis 112
17 Toll Vs Tariff 122
18 Letter of Comfort 125
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19 Delegation of Powers 127
20 Documentation 130
21 Monitoring Mechanism - Review of 136
Accounts
22 Special Mentioned Account 145
23 Checklist for Regional Office 147
24 Annexure 149
24.1 RO Monitoring Report 150
24.2 NBC Format 151
24.3 Consortium Meeting Record Note 152
24.4 Site visit Format 153
24.5 Take Out Finance Information 156
24.6 Environmental and Social Report 158
24.7 Monthly Letter 160
24.8 MIS - Annexure 164
24.9 Review Note 169
24.10 NBFC - IFC - Information Submission to RBI 172
Half yearly Statement of capital funds, risk assets /
exposures and risk asset ratio, etc. as at end of March
/ September 20.
24.11 NBFC - IFC - Information Submission to RBI 175

Half yearly Statement of capital funds, risk assets /

exposures and risk asset ratio, etc. as at end of March
/ September 20.
 Ii F CL

Section -1
Scope and
Objectives

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 Inaia
Infrautructura
FirImartc.
Company Limited
IIFCL.

The India Infrastructure Finance Company (IIFCL) was incorporated on January 5, 2006,
under the Companies Act 1956, as a Company wholly owned by the Government of India
with an authorized capital of Z 2000 (Cr) and paid-up capital of Z 2,000 (Cr). Besides, the
resource-raising programme of the Company would have sovereign support, wherever
required.

The total Investment in Infrastructure during the 11th Plan (2007-2012) is projected to be
over Z 20,18,700 Crore (USD 492 billion). The sectoral disaggregates show that 30.5% of the
projected investments will be in power sector, 15.4% in roads and bridges, 13.2% in
telecommunications, 12.6% in railways, 3.7% in ports, 1.7% in airports and the remaining in
sectors like irrigation, gas, storage, water, sanitation etc. Further the investment
requirements estimated during the Twelfth Five Year Plan 2012 2017 would be of the
-

order of USD 1 trillion. With the Eleventh Five Year Plan midterm appraisal shares of
public and private investment in total infrastructure investment during the Eleventh Plan
projected to be about 70 per cent and 30 per cent respectively; in contrast with 83 per cent
and 17 per cent respectively, during the Tenth Plan; it was also observed that Public Private
Partnerships (PPPs) present the most suitable option of meeting these targets, not only in
attracting private capital in creation of infrastructure but also in enhancing the standards of
delivery of services through greater efficiency.

Provision of quality infrastructure is the most significant criteria for continued growth. In
order to augment long term financial assistance for commercially viable infrastructure
projects, the Central Government approved a Scheme for Financing Viable Infrastructure
Projects through a Special Purpose Vehicle called the India Infrastructure Finance
Company Ltd, broadly referred to as SIFTI (Revised). Accordingly, IIFCL extends its
financial assistance under the overall aegis of SIFTI (Revised), the broad terms of which are
outlined hereunder.

i. Eligibility criteria for institutions implementing infrastructure projects:

• A Public Sector Company ;
• A Private Sector Company selected under a Public-Private Partnership (PPP)
initiative ;
• A Private Sector Company (Non-PPP) provided it has undertaken a project
where the service to be provided is regulated or the project is being set up under
an MoU arrangement with the Central, any State government or a Public Sector
Undertaking.
ii. Eligible Sectors:

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lIFOL Cc,rwag,aaw Limited

• Roads & bridges, railways, seaports, airports, inland waterways, other

transportation projects;
• Power;
• Urban transport, water supply, sewerage, solid waste management and other
physical infrastructure in urban areas;
• Gas pipelines
• Infrastructure projects in special economic zones
• International convention centers, other tourism related infrastructure.
• Cold Storage Chains
• Warehouse
• Fertilizers Manufacturing Industry
• Other infrastructure projects, as may be determined from time to time.
iii. Total lending for Non-PPP projects shall not exceed 20% of the lending programme of
the company in any accounting FY.
iv. The tenor of IIFCL lending should be larger than that of the longest tenor commercial
debt by at least two years.
v. Projects which are set up on "non-recourse" basis would only be eligible for financing
by IIFCL.
vi. Disbursement of loans by IIFCL is subject to the appraisal being done by reputed
appraising institutions and the lead bank accepting and adopting the same. IIFCL
shall disburse the loan only after getting the sanction from the Lead Bank.
vii. IIFCL would not normally carry out any independent appraisal of the project.

Lead Bank shall be responsible for regular monitoring and periodic evaluation of
compliance of the project with the agreed milestones.

To stimulate public investment in infrastructure, IIFCL formulated a Takeout Finance

Scheme (TFS) to address the Asset-Liability mismatch of commercial banks that may arise
out of financing long term infrastructure projects. Through the TFS, IIFCL envisages to
boost availability of longer tenor debt finance for viable infrastructure projects, extend
capital relief and address the sectoral/group/ entity exposure concerns of lenders
providing debt finance to infrastructure projects.

With a view to implement the SIFTI (Revised) and Take out Finance Scheme (Revised), it is
the endeavour of IIFCL to put in place a sound and effective policy for dispensation of
credit to eligible infrastructure projects in the country. The main objectives of such a policy
are:

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IIFCL
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i. To build and support qualitative growth of the asset portfolio.

ii. Application of the state of the art credit appraisal tools and techniques to develop
deep insights to evaluate infrastructure projects that will result in highly
qualitative asset portfolio with optimal levels of performance.
iii. To institute due diligence for mitigating levels of credit risks and improved credit
quality.
iv. To endeavour towards broad basing the sectoral exposures so as to address the
needs of all the eligible infrastructure sectors evenly.

This policy document envisages to clearly present the applicable schemes and products of
IIFCL in order to enable clear understanding of the intent, purpose, and applicability in a
detailed but lucid manner. The policy aims at systematic standardization of the entailing
framework of the processes, procedures and controls specific to the credit function. In this
context, it will be pertinent to make a mention that the functional activities of IIFCL is in its
nascence with all the functions of the direct credit to infrastructure projects being centrally
managed, administered and controlled. This includes the operational activities of a branch
office, the consolidation activities of a regional office and the policy related activities.
While IIFCL is presently required to utilize the appraisal and due diligence of the Lead
Banks, the Credit Policy attempts to put in place a system for undertaking its own due-
diligence appraisal and sensitivity analysis to assess the viability of infrastructure
projects by evaluating technical feasibility, bankability, identify risks and institute
suitable risk mitigation measures.

The Policy lays the norms to admit the new project proposals for detailed credit appraisal
and due diligence. The detailed credit appraisal of the project examines the various risks
involved in financing of the same, vetted over by the conventional approach with respect to
the promoter's capability, assumptions based on which the financials of the project SPV are
estimated, the external rating risk perspective, adherenCe to exposure limits, and other
factors such as:
• Sponsor's Integrity/Reputation, financial strength, experience and execution
capabilities;
• Current risk profile and its sensitivity to changes in environment;
• Track record of the sponsor for debt servicing with financial institutions / banks;
• Cash flow projections for capacity to repay;
• Legal capacity to assume the liability;

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• Adequacy and enforceability of the tangible securities/ guarantees under

various scenarios;
• Terms and conditions proposed to take care of the future risk profile.

The detailed appraisal also applies to sector, policy and regulation perspective and
variables which contribute towards the project risks and available mitigants. As the IIFCL
is interfaced with Power, Roads and Bridges, Railways, Seaports, Airports, Inland
waterways, Urban Transport, Urban Infrastructure, Gas Pipelines, Infrastructure projects in
SEZs, International convention centers and tourism infrastructure projects, cold storage
chains, Warehouses and Fertilizers manufacturing industry the risk landscape varies
between sectors. Further, the project perspectives are also governed by institutional stakes
viz. Public Sector, PPP initiatives and Private Sector. A detailed independent due diligence
is prescribed under the Policy with respect to the promoters credentials, credit reports of
the lead bank and other financial institutions, CIBIL, ECGC Defaulters list and
regulatory bodies such as RBI.

The policy also includes the extensive processes and procedures relating to Customer
identification, Customer acceptance, Record Maintenance and Risk based approach. The
Policy envisages to put in place risk and rating based exposure and pricing mechanisms
which will necessitate sound and supportive Credit Risk Management and Operations Risk
Management systems and synchronization of the risk functions with the overall Entity Risk
Management.

Monitoring and supervision which are the vital activities of credit functions are covered
under the Policy with a view to keep track of the status of progress in performance of the
project, ensure that the various terms and conditions stipulated at the time of sanction are
being complied with, monitor whether the activity schedule is being executed in a timely
manner and for cost over-runs (if any), and access the early signals of warning of slippages
in project performance. Constant off-site surveillance is maintained by way of periodic
progress reports by Lenders Independent Engineers (LIEs) which provides the project
execution, status of availability of land / land acquisition, availability of power and water
and other infrastructure, likely impediments in implementation and progress of the project
and overall environment implications. The off-site surveillance mechanism is substantiated
by participation in meetings with the consortium of lenders and on-site inspections of the
project sites for assessing the progress. The Policy encapsulates these critical mechanisms in
a detailed manner with suitable linkage to the ongoing future disbursements for the

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project. As the activity of IIFCL increases, it will only be pertinent to strengthen this
function to enable maintenance of closer coordination with the project stakeholders.

The Policy also entails Annual Reviews to understand the status of the financing projects at
the given time, prepayment, issues related to repayment such as penalties, reset of interest
rates and other material changes being effected in the projects after its sanctions,
restructuring, repayment, etc. In spite of sound risk management and appraisal processes,
some accounts may develop weakness on account of changes in internal or external
conditions. Accordingly, a system for identifying Special Mention Accounts (SMAs) has
been devised based on accumulated over dues and lower risk ratings, which is intended to
enable closer monitoring and coordination with the project stakeholders.

With regard to the management of the project's information collated and developed out of
the performance of the project was prudent by informed for reasonable business decisions
from the Management Information System (MIS) cannot be over emphasized. The Policy
has laid down an effective MIS with appropriate formats and time frames required by the
operations.

Further IIFCL may also not consider fresh loans to groups which regularly delay the
payment of interest and principal.

Modification / Change in Credit Policy

The Board of IIFCL may consider any changes / modifications in the credit policy as and
when required.

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Strategies to
achieve the
Objectives

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Cy.r.vaarty litmated

1. Cost Effective Pricing

- Competitive approach in pricing with due regards to the nature of risks, rating of
the accounts, cost of funds, cost of services, operating cost and market forces.

2. Effective Supervision and Monitoring

- Toning of the existing system for effective supervision and monitoring of the
credit portfolio so as to improve the quality of the loan assets.
Proper and due attention to loan assets in risk category special mention
-

accounts and restructured accounts followed meticulously and closely in order

-

to avoid their slippage into NPA category

3. Competence Building
- Developing a team of competent officers by parting necessary training and
capacity building by providing on job and off job exposures to different facets of
credit management and credit administration for various infrastructure sectors.

4. Head Office Initiative

- Providing timely support and guidance from Head Office

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 Chapter -1
Definitions
under SIFTI

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l.frautructure

Corv.nparay Limited
IIFC L

Definitions

In this Scheme unless the context otherwise requires:

(a) Empowered Committee means a Committee set up for the purposes of this Scheme
consisting of Secretary (Economic Affairs), Secretary, Planning commission, Secretary
(Expenditure) and Secretary (Financial Sector) as Convener and in his absence Special
Secretary / Additional Secretary (Financial Sector) and Secretary of the line Ministry
dealing with the subject.

(b) IIFCL means the India Infrastructure Finance Company Ltd (A company
incorporated under the Companies Act, 1956).

(c) Lead Bank means the Bank/Financial Institution (FI) that is funding the project and is
designated as such by the Inter-Institutional Group or consortium of Banks/Financial
Institutions provided the risk exposure of IIFCL is less than that of the lead bank in a
project.

(d) Long Term Debt means the Debt provided by the IIFCL to the project company
where the average maturity for repayment exceeds 10 years (8.5 years in the case of
IIFC(UK) Ltd).

(e) Private Sector Company means a company in which 51% or more of the subscribed
and paid-up equity is owned and controlled by private entities;

(f) Project Company means the company which is implementing the infrastructure
project for which assistance is to be given by the IIFCL.

(g) Project Term means the duration of the contract or concession agreement for a PPP
project.

(h) Public Private Partnership (PPP) Project means a project based on a contract or
concession agreement, between a Government or a statutory entity on the one side
and a Private Sector Company on the other-side, for delivering an infrastructure
service on payment of user charges;

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(i) Public Sector Company means a company in which 51 % or more of the subscribed
and paid-up equity is owned and controlled by the Central or a State Government,
jointly or severally, and includes any undertaking designated as such by the
Department of Public Enterprises and companies in which majority stake is held by
Public Sector Companies other than financial institutions.

(j) Total Project Cost means the total capital cost of the project as approved by the Lead
Bank subject to the condition that IIFCL should be able to cover the risk between the
PPPAC approved cost and the Lead Bank approved cost by seeking guarantees from
the holding company or any other form of recourse.

(k) Subordinate Debt means a debt which ranks lower in security than the project debt
carrying a pari-passu charge.

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 Chapter -2
Definitions &
Elements of
PPP Projects
in
Infrastructure
12IPage
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94
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Irda-aatraacturee
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11FC L

Preamble
Government of India is committed to improving the level and the quality of economic and
social infrastructure services across the country. In pursuance of this goal, the Government
envisages a substantive role for Public Private Partnership (PPPs) as a means for
harnessing private sector investment and operational efficiencies in the provision of public
assets and services.

Defining Public Private Partnerships as per SIFTI (Revised)

1.1 Public Private Partnership (PPP) Project means a project based on a contract or
concession agreement, between a Government or a statutory entity on the one side and
a Private Sector Company on the other-side, for delivering an infrastructure service on
payment of user charges.

1.2 The definition as given by SIFTI (Revised) consist of the following essential elements
which are put as under:

i. Arrangement with private sector entity: The asset and/or service under the contractual
arrangement will be provided by the Private Sector entity to the users. An entity that has a
majority non-governmental ownership, i.e., 51 percent or more, is construed as a Private
Sector entity.

ii. Public asset or service for public benefit: The facilities/ services being provided are
traditionally provided by the Government, as a sovereign function, to the people. To better
reflect this intent, two key concepts are elaborated below:

(a) 'Public Services' are those services that the State is obligated to provide to its citizens or
where the State has traditionally provided the services to its citizens.
(b) 'Public Asset' is that asset the use of which is inextricably linked to the delivery of a
Public Service, or, those assets that utilize or integrate sovereign assets to deliver
Public Services. Ownership by Government need not necessarily imply that it is a
PPP.

iii. Investments being made by and/or management undertaken by the private sector
entity: The arrangement could provide for financial investment and/or non-financial
investment by the private sector; the intent of the arrangement is to harness the private
sector efficiency in the delivery of quality services to the users.

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iv. Operations or management for a specified period: The arrangement cannot be in

perpetuity. After a pre-determined time period, the arrangement with the private sector
entity comes to a closure.

v. Risk sharing with the private sector: Mere outsourcing contracts are not PPPs.

vi. Performance linked payments: The central focus is on performance and not merely
provision of facility or service.

vii. Conformance to performance standards: The focus is on a strong element of service

delivery aspect and compliance to pre -determined and measurable standards to be
specified by the Sponsoring Authority.

1.3 The above definition puts forth only the essential conditions for an arrangement to be
designated as a Public Private Partnerships (PPP). In addition to these, some of the
desirable conditions or 'good practices' for a PPP include the following:

a. Allocation of risks in an optimal manner to the party best suited to manage the risks;

b. Private sector entity receives cash flows for their investments in and/ or management of
the PPP either through a performance linked fee payment structure from the government
entity and/or through user charges from the consumers of the service provided;

c. Generally a long term arrangement between the parties but can be shorter term
dependent for instance on the sector or focus of PPP;

d. Incentive and penalty based structures in the arrangement so as to ensure that the
private sector is benchmarked against service delivery;

e. Outcomes of the PPP are normally pre-defined as output parameters rather than
technical specifications for assets to be built, though minimum technical specifications
might be identified. Such a structure is expected to leave room for innovation and
technology transfer in project execution / implementation by the private sector entity.

1.4 The models where ownership of the underlying asset remains with the public entity
during the contract period and project is transferred back to the public entity after the
termination contract are the preferred forms of Public Private Partnership models. The final
decision on the form of PPP is a determinant of the Value for Money analysis.

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1.5 Some of the commonly adopted forms of PPPs include management contracts, build-
operate- transfer (BOT) and its variants, build-lease-transfer (BLT), design-build-operate-
transfer (DBFOT), operate-maintain-transfer (OMT), etc.

1.6 Build-own-operate (BOO) model is normally not the supported form of Public Private
Partnership in view of the finite resources of the Government and complexities in imposing
penalties in the event of non-performance and estimation of value of underlying assets in
the event of early termination. Government of India does not recognise service contracts,
Engineering-Procurement-Construction (EPC) contracts and divestiture of assets as forms
of PPP.

1.7 Government commits to the spirit of 'partnership' amongst all the stakeholders -public,
private, end users and community. While the current initiatives on having a strong public
community private partnerships would continue, with the growing capacity and maturity
of the stakeholders concerned under a PPP arrangement, Government would in due course
selectively consider newer models of 'partnerships' which would be simpler, flexible and
engage increased participation amongst the contracting parties.

PPP Models supported by the Government

User-Fee Based BOT models - Medium to large scale PPPs have been awarded mainly in
the energy and transport sub-sectors (roads, ports and airports). Although there are
variations in approaches, over the years the PPP model has been veering towards
competitively bid concessions where costs are recovered mainly through user charges (in
some cases partly through VGF from the government).

Annuity Based BOT models - In sectors/projects not amenable for sizeable cost recovery
through user charges, owing to socio-political-affordability considerations, such as in rural,
urban, health and education sectors, the government harnesses private sector efficiencies
through contracts based on availability/performance payments. Implementing "annuity
model" will require necessary framework conditions, such as payment guarantee
mechanism by means of making available multi-year budgetary support, a dedicated fund,
letter of credit etc. Government may consider setting-up a separate window of assistance
for encouraging annuity-based PPP projects. A variant of this approach could be to make a
larger upfront payment (say 40% of project cost) during the construction period.

Design-Build-Finance- Operate-Transfer (DBFOT) is a form of project financing, wherein a

private entity receives a concession from the private or public sector to finance, design,
construct, and operate a facility stated in the concession contract, while the Concessioning

15I Page
 India.

A&
II F C L
Infrestructury
Firaftnce
Compare., 'Limited

Authority assumes ownership. This enables the project proponent to recover its
investment, operating and maintenance expenses in the project. Due to the long-term
nature of the arrangement, the fees are usually raised during the concession period. The
rate of increase is often tied to a combination of internal and external variables, allowing
the proponent to reach a satisfactory internal rate of return for its investment.

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Finsuce

Chapter 3
---

Exposure
Norms

171Page
99

Ank
IIFCL
Irdrastructvro
Firnmonc.
Company Limited

Exposure Norms
Exposure shall include credit exposure (funded and non- funded) and investment exposure
(including underwriting and similar commitments). The sanctioned limits or out standings
which ever are higher shall be reckoned for arriving at the exposure limits. However in the
case of drawn term loans where there is no scope for re-drawl of any portion of the
sanctioned limit, IIFCL may reckon outstanding position as under:

Gross Sanction Cancellation/ Term Loan drawn / Prepayments / Repayments

-

1. Lending as percentage of Total Project Cost, Single and Group exposure norm
The total lending by the IIFCL to any Project Company shall conform to the following:

i) 20% of the Total Project cost

ii) Single Project Exposure Norm and Group Exposure Norm as per the applicable
RBI guidelines for NBFC-IFC

1.2 Exposure norms based on RBI guidelines

With effect from 1st June 2010, IIFCL has voluntarily started following the RBI prescribed
exposure norms. As per RBI norms for NBFC-IFC, credit exposure to Single Borrower
could be upto 15 per cent of its Net Owned Fund (NOF) and in case of infrastructure
projects this could be increased by additional 10% i.e. 25 per cent of its Net Owned Fund.
Similarly, credit exposure to a Promoter Group would be 25 per cent of its NoF which
could be enhanced by additional 15% i.e. 40 per cent (25+15) of its NoF in case of
infrastructure projects.

Accordingly, IIFCL can have maximum exposure of 25 per cent of its NoF to any single
borrower and 40 per cent of its NoF to any Promoter Group. IIFCL's fresh exposures
committed to the projects should conform to these norms.

1.2.1 Definition of "Group"

As per RBI circular relating to banks
a) The concept of Group' and the task of identification of the borrowers belonging to specific
industrial groups is left to the perception of the banks/financial institutions. Banks/financial
institutions are generally aware of the basic constitution of their clientele for the purpose of
regulating their exposure to risk assets. The group to which a particular borrowing unit belongs,
may, therefore, be decided by them on the basis of the relevant information available with them,
the guiding principle being commonality of management and effective control. In so far as public
sector undertakings are concerned, only single borrower exposure limit would be applicable.

18I Page
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Ah, Infrastraaetaxane
Finance
Compa lny
11FCI.

b) In the case of a split in the group, if the split is formalized the splinter groups will be regarded as
separate groups. If banks and financial institutions have doubts about the bona fides of the split,
a reference may be made to RBI for its final view in the matter to preclude the possibility of a
split being engineered in order to prevent coverage under the Group Approach."

IIFCL will follow RBI's definition of Group. In case of multiple sponsors to a particular
borrower SPV, IIFCL would consider the Group with the highest controlling stake in the
SPV for the purpose of exposure norms. However, in case of more than one sponsor
Group having same controlling stake, the Group with management control will be
considered for the exposure norms purpose.

2. Sectoral Exposures of IIFCL

Clause 5.2 (c) of SIFTI (Revised) specifies that the projects to be funded by IIFCL should be
from sectors like roads, railways, seaports, airports, in-land water ways, power, urban
infrastructure, gas pipelines and infrastructure projects in SEZs, cold storage chains,
warehouses, fertilizers manufacturing industry.

Currently, the credit portfolio of IIFCL is concentrated in the road and power sectors. This
is because of large number of PPP mode from the road sector and private sector projects in
the power sector. The flow of projects from the airports and ports has been limited.
Considering that IIFCL is to provide overriding priority to PPP projects, no sectoral caps
have been fixed. However, IIFCL proposes the following sectoral caps:

Sector Lending Exposure

Road Not exceeding 45% of total sanction
Power
Urban Development
Metros/ Railways/ SEZ's
Ports (Sea and Air ports) Not exceeding 40%
Gas pipelines of total sanction
Cold storage chains, warehouses, fertilizers
manufacturing Industries and others

Exposure to Non-PPP projects:

As per Clause 5.2 of SIFTI (Revised), total lending for private projects shall not exceed 20%
of the lending programme of the company in any accounting year. The IIFCL's Board shall
have the authority to consider any modifications / deviations to the exposure norms.

19IPage
Chapter 4
A-

RBI
Prudential
Norms
 102
India
Atk
/1FCL.
Infrostrucenne
Finance
Corny...nv Linn

IIFCL shall follow RBI's guideline as applicable to NBFC-IFC notified in RBI Circular no.
DNBS.193/ DG (VL)-2007 dated February 22, 2007.

The Key features of the prudential norms contained in the aforesaid notification are as
under:

i) "break up value" means the equity capital and reserves as reduced by intangible
assets and revaluation reserves, divided by the number of equity shares of the
investee company;
ii) " carrying cost" means book value of the assets and interest accrued thereon but
not received;
iii) "current investment" means an investment which is by its nature readily
realizable and is intended to be held for not more than one year from the date on
which such investment is made;
iv) "doubtful asset" means:
(a) a term loan, or
(b) a lease asset, or
(c) a hire purchase asset, or
(d) any other asset,
which remains a sub-standard asset for a period exceeding 18 months;
v) "fair value" means the mean of the earning value and the breakup value;
vi) "loss asset" means:
(a) an asset which has been identified as loss asset by the non-banking
financial company or its internal or external auditor or by the Reserve Bank of
India during the inspection of the non-banking financial company, to the extent
it is not written off by the non-banking financial company; and
(b) an asset which is adversely affected by a potential threat of non
recoverability due to either erosion in the value of security or non availability of
security or due to any fraudulent act or omission on the part of the borrower;
(vii) 'non-performing asset' (referred to in these Directions as "NPA")means:
(a) an asset, in respect of which, interest has remained overdue for a period of
six months or more;
(b) a term loan inclusive of unpaid interest, when the installment is overdue
for a period of six months or more or on which interest amount remained
overdue for a period of six months or more;

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Ir.
Irafs-laotratcture
Finance
lmpagmy Limited
IIFCL

(c) a demand or call loan, which remained overdue for a period of six months or
more from the date of demand or call or on which interest amount remained
overdue for a period of six months or more;
(d) a bill which remains overdue for a period of six months or more;
(e) the interest in respect of a debt or the income on receivables under the head
'other current assets' in the nature of short term loans/advances, which facility
remained overdue for a period of six months or more;
(f) any dues on account of sale of assets or services rendered or reimbursement
of expenses incurred, which remained overdue for period of six months or
more;
(g) the lease rental and hire purchase installment, which has become overdue for
a period of twelve months or more;
(h) in respect of loans, advances and other credit facilities (including bills
purchased and discounted), the balance outstanding under the credit facilities
(including accrued interest) made available to the same borrower/beneficiary
when any of the above credit facilities becomes on-performing asset:

Provided that in the case of lease and hire purchase transactions, a non banking financial
company may classify each such account on the basis of its record of recovery;

(viii) "owned fund" means paid up equity capital, preference shares which are
compulsorily convertible into equity, free reserves, balance in share premium
account and capital reserves representing surplus arising out of sale proceeds of
asset, excluding reserves created by revaluation of asset, as reduced by
accumulated loss balance, book value of intangible assets and deferred revenue
expenditure, if any;
(ix) "standard asset" means the asset in respect of which, no default in repayment of
principal or payment of interest is perceived and which does not disclose any
problem nor carry more than normal risk attached to the business;
(x) "sub-standard asset" means:
(a) an asset which has been classified as non-performing asset for a period not
exceeding 18 months;
(b) an asset where the terms of the agreement regarding interest and / or
principal have been renegotiated or rescheduled or restructured after
commencement of operations, until the expiry of one year of satisfactory
performance under the renegotiated or rescheduled or restructured terms:

22IPage
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Alk India
Infrastructu re
Finance
IIFOL Company Limited

Provided that the classification of infrastructure loan as a sub-standard asset shall be

in accordance with the provisions detailed below at Para "Norms relating to
Infrastructure Loan:
(xi)" subordinated debt" means an instrument, which is fully paid up, is unsecured and is
subordinated to the claims of other creditors and is free from restrictive clauses and
is not redeemable at the instance of the holder or without the consent of the
supervisory authority of non-banking financial company. The book value of such
instrument shall be subjected to discounting as provided hereunder:
Remaining Maturity of the instruments Rate of discount
(a) Upto one year 100%
(b) More than one year but upto two years 80%
(c) More than two years but upto three years 60%
(d) More than three years but upto four years 40%
(e) More than four years but upto five years 20%
to the extent such discounted value does not exceed fifty per cent of Tier I capital;

Income recognition
(1) The income recognition shall be based on recognized accounting principles.
(2) Income including interest/discount or any other charges on NPA shall be recognized
only when it is actually realized. Any such income recognized before the asset became non-
performing and remaining unrealized shall be reversed.

Explanation
For the purpose of this paragraph, 'net lease rentals' mean gross lease rentals as adjusted
by the lease adjustment account debited/credited to the profit and loss account and as
reduced by depreciation at the rate applicable under Schedule XIV of the Companies Act,
1956 (1 of 1956).

Loans, advances and other credit facilities including bills purchased and discounted
(1) The provisioning requirement in respect of loans, advances and other credit facilities
including bills purchased and discounted shall be as under:
(i) Loss Assets The entire asset shall be written off. If the assets are permitted to
remain in the books for any reason, 100% of the outstanding should be provided for;
(ii) Doubtful Assets
(a) 100% provision to the extent to which the advance is not covered by the
Realizable value of the security to which the non-banking financial company

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Ak
1.frootrtacturle
Firtorsce
Company 'Limited
I IF C L

has a valid recourse shall be made. The realizable value is to be estimated on

a realistic basis;
(b) In addition to item (a) above, depending upon the period for which
the asset has remained doubtful, provision to the extent of 20% to 50% of the
secured portion (i.e. estimated realisable value of the outstanding) shall be
made on the following basis : -

Period for which the asset has % of provision

been considered as doubtful
Up to one year 20
One to three years 30
More than three years 50

(iii) Sub-standard assets A general provision of 10%

of total outstanding shall be made.

Norms relating to Infrastructure loan

(1) Applicability
(i) These norms shall be applicable to restructuring and/or rescheduling and/or
renegotiation of the terms of agreement relating to infrastructure loan, as defined in
paragraph 2(1)(viii) of these Directions which is fully or partly secured standard and
sub-standard asset and to the loan, which is subjected to restructuring and/or
rescheduling and/or renegotiation of terms.
(ii) Where the asset is partly secured, a provision to the extent of shortfall in the
security available, shall be made while restructuring and/or rescheduling and/or
renegotiation of the loans, apart from the provision required on present value basis
and as per prudential norms.

(2) Restructuring, rescheduling or renegotiation of terms of infrastructure loan

The non-banking financial companies may, not more than once, restructure or reschedule
or renegotiate the terms of infrastructure loan agreement as per the policy framework laid
down by the Board of Directors of the company under the following stages:
(a) before commencement of commercial production;
(b) after commencement of commercial production but before theasset has been
classified as sub-standard;
(c) after commencement of commercial production and the asset has been classified
as sub-standard:

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Ir.fromtz-ucture
Flraar.e.
0...T.D....CV Limited
IIFC

Provided that in each of the above three stages, the restructuring and/or
rescheduling and/or renegotiation of principal and / or of interest may take place,
with or without sacrifice, as part of the restructuring or rescheduling or
renegotiating package evolved.

(3)Treatment of restructured standard loan

The rescheduling or restructuring or renegotiation of the installments of principal alone, at
any of the aforesaid first two stages shall not cause standard asset to be re-classified in the
sub-standard category, if the project is re-examined and found to be viable by the Board of
Directors of the company.

Provided that rescheduling or renegotiation or restructuring of interest installment at any

of the foregoing first two stages shall not cause an asset to be downgraded to sub-standard
category subject to the condition that the amount of interest foregone, if any, on account of
adjustment in the element of interest as specified later, is either written off or 100 per cent
provision is made.

(4)Treatment of restructured sub-standard asset

A sub-standard asset shall continue to remain in the same category in case of restructuring
or rescheduling or renegotiation of the installments of principal until the expiry of one year
and the amount of interest foregone, if any, on account of adjustment, including
adjustment byway of write off of the past interest dues, in the element of interest as
specified later, shall be written off or 100 per cent provision made there against.

(5)Adjustment of interest
Where rescheduling or renegotiation or restructuring involves a reduction in the rate of
interest, the interest adjustment shall be computed by taking the difference between the
rate of interest as currently applicable to infrastructure loan (as adjusted for the risk rating
applicable to the borrower) and the reduced rate and aggregating the present value
(discounted at the rate currently applicable to infrastructure loan, adjusted for risk
enhancement) of the future interest payable so stipulated in the restructuring or
rescheduling or renegotiation proposal.
(6)Funded Interest
In the case of funding of interest in respect of NPAs, where the interest funded is
recognized as income, the interest funded shall be fully provided for.

25IPage
107
Inclas
Irtfratstructure
Finew.c.
Company Limited
IIFCL

(7)Income Recognition norms

The income recognition in respect of infrastructure loan shall be governed by the
provisions of paragraph 3 of these Directions;

(8)Treatment of Provisions held

The provisions held by the non-banking financial companies against non-performing
infrastructure loan, which may be classified as 'standard' in terms of sub-paragraph (3)
hereinabove, shall continue to be held until full recovery of the loan is made.

(9) Eligibility for up gradation of restructured sub-standard infrastructure loan

The sub-standard asset subjected to rescheduling and/or renegotiation and/or
restructuring, whether in respect of installments of principal amount, or interest amount,
by whatever modality, shall not be upgraded to the standard category until expiry of one
year of satisfactory performance under the restructuring and/or rescheduling and/or
renegotiation terms.

(10)Conversion of debt into equity

Where the amount due as interest is converted into equity or any other instrument, and
income is recognized in consequence, full provision shall be made for the amount of
income so recognized to offset the effect of such income recognition:
Provided that no provision is required to be made, if the conversion of interest is into
equity which is quoted;

Provided further that in such cases, interest income may be recognized at market value of
equity, as on the date of conversion, not exceeding the amount of interest converted to
equity.

(11)Conversion of debt into debentures

Where principal amount and/or interest amount in respect of NPAs is converted into
debentures, such debentures shall be treated as NPA, void-ab-initio, in the same asset
classification as was applicable to the loan just before conversion and provision shall be
made as per norms.

(12) Increase in exposure limits for Infrastructure related loan and investment. The
systemically important non-deposit taking non-banking financial companies may exceed
the concentration of credit/investment norms, as provided in paragraph 18 of these

26IPage
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India

Ak
Infrastructure
Finance
Company Limitedited
I I F C L

Directions, by 5 per cent for any single party and by 10 per cent for a single group of
parties, if the additional exposure is on account of infrastructure loan and/ or investment.

(13) Risk weight for investment in AAA rated securitized paper

The investment in "AAA" rated securitized paper pertaining to the infrastructure facility
shall attract risk weight of 50 per cent for capital adequacy purposes subject to the
fulfillment of the following conditions:
(i) The infrastructure facility generates income / cash flows, which ensure servicing
/ repayment of the securitized paper.
(ii) The rating by one of the approved credit rating agencies is current and valid.

Explanation:
The rating relied upon shall be deemed to be current and valid, if the rating is not
more than one month old on the date of opening of the issue, and the rating
rationale from the rating agency is not more than one year old on the date of
opening of the issue, and the rating letter and the rating rationale form part of the
offer document.

(iii) In the case of secondary market acquisition, the 'AAA' rating of the issue is in
force and confirmed from the monthly bulletin published by the respective rating
agency.
(iv) The securitized paper is a performing asset.

Provisioning requirement
(i) Loss Assets The entire asset shall be written off. If the assets are
permitted to remain in the books for any reason, 100% of the
outstanding should be provided for;
(ii) Doubtful Assets (a) 100% provision to the extent to which the advance is not
covered by the realizable value of the security to which
the non-banking financial company has a valid recourse
shall be made. The realizable value is to be estimated
on a realistic basis;
(b) In addition to item (a) above, depending upon the
period for which the asset has remained doubtful,
provision to the extent of 20% to 50% of the secured
portion (i.e. estimated realizable value of the
outstanding) shall be made on the following basis:-

27IPage
109
Ak
India
1.froutructure
Fir.gme-s
Co•rnprarty Limated
IIFOL

Period for which the asset as been % of provision

considered as doubtful

Up to one year 20
One to three years 30
More than three years 50
(iii) Sub-standard assets A general provision of 10% of total outstanding shall be
made.

28IPage
 Finance

Chapter 5
Credit
Rating

29IPage
11
Ahhhb, Intra•tructur.

Compeer., 1L:2-nited
IIFCI-

RATING OF ACCOUNTS- Based on Due Diligence, the rating shall be assigned to all the
IIFCL's credit proposals in terms of guidelines prescribed for the purpose.

A. GREEN FIELD PROJECTS- Green field project has been defined as under:
- A Totally new project started by a new company
- An expansion project of the existing company where investment in the assent of
the new project more than 50% of the tangible net-worth of the new company

B. BROWNFIELD PROJECTS Brownfield projects are projects which are under

-

operation and investment are made for expansion and / or modernization.

In rating these projects in the first year of operation/ assessment and management, rating
would be based on the available information:

1. Project Debt Equity ratio- Lower the debt equity ratio the less risky is the finance
extended to the project.
2. Timing of the capital infusion by the promoter- earlier the better.
3. Existence of additional cash flow which can be used for repayment of interest and
principal in addition to availability of the cash flow in the project- where the project is
not entirely on standalone basis for instance, expansion of an existing capital
installation for increased capacity or for the purpose of forward or backward linkages,
repayment of interest and principal would also come in addition to the cash flow
generated by the project undertaken from the cash flow generated by the existing
installation.

To this, extent, a project on a standalone may be more risky compared to a project which is
an expansion of existing project.

MANAGEMENT:- Following relevant factors would be taken into consideration:

➢ Integrity / Commitment
• Financial Strength
➢ Technical / Finance Knowledge
:0- Organizational Structure / Succession Plan
• Selling and distribution network
➢ Experience of Directors and promoters
• Pending Litigations
Market Reputation and Past Track Record

30IPage
 112
A rta, I.clie.
Infrastructure
Finance
11FC1_. Company limited

Credit Rating followed by IIFCL:-

IIFCL currently does the risk assessment and rating appraisals using Risk Assessment
Model (RAM) procured from CRISIL. It carries out the risk rating of all the proposals prior
to sanction, and maintains MIS reports relating to capital adequacy, asset classification,
provisioning, portfolio concentration, exposure norms, and credit exception reports.

Assessment of a project is done by an analyst in the developmental, construction or

Operational stage. Selection of stage to be scored is based on the status of the project. The
schematic below explains the concept of obtaining three levels of ratings;

Rating Methodology

Combined Rating

Overall Corn pany Facility Risk Rating

Rating

Company Rating Project Rating

Industry Risk
Project Post Project
Business Risk
Implementation Risk Implementation Risk
Financial Risk
--11w Other Critical Risks Completion Risk --Ow Industry Risk
Execution Risk 11. Business Risk
Financial Risk
Other Critical Risks

• Overall Company Rating(interim rating), reflects the Probability of Default (PD) of

the borrower.
• Facility Risk Rating, reflects the Loss Given Default (LGD) of the transaction
(secured as well as unsecured portion).
• The combination of PD and LGDs gives the Expected Loss (EL), which is eventually
reflected in the combined rating grade.

31IPage
113
Ind ige
1.firutructulne

Company Limitod
11FCL.

Rating Analysis:

The proposal "credit risk rating analysis" is done broadly on objectivity and subjectivity
based on the various parameters judgment and industry trends and movements in the
following:
Sector policies on a continuous basis
Sector latest regulation on a continuous basis
Banking regulations and norms
Project financial and capital structuring
Project assumptions, reasonability and sensitivity
Project location and demography
Execution capabilities and overall financial and operational ratios and indices

Facility Risk Rating (FRR)

IIFCL has undertaken the obligor rating (interim rating) for all the projects in Build
phase by making use of the RAM Model. However, the other important step involves
providing the Facility Risk Rating based on the project's security, valuation in the final
loan agreement to all the existing proposals to finalize the entire interim rated portfolio and
arrive at the combined final rating.

IIFCL will also undertake the Facility Risk Rating of all the interim proposals. The
implementation of above step shall help IIFCL to arrive at not only Probability of Default
(PD) estimates, but also Loss Given Default (LGD) and Expected Loss (EL) analysis.

IIFCL shall follow prudential guidelines of RBI applicable to NBFC-IFC and shall confirm
to the risk weighted as per the ratings assigned by the rating agency registered with the
SEBI and accredited by RBI. The following table indicates the applicable risk weights:

Domestic rating BB &

AAA AA A BBB Unrated
agencies Below
Risk Weight (%) 20 30 50 100 150 100

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lasctia
Inhrassructnn

Adink
IIF CI-
Fir.arbc.
CompanyI-am:vend

The comparative chart in terms on internal and external rating is given below:

Internal rating
Description Equivalent external rating**
Grade
Grade 1 Investment Grade - Highest safety AAA
Grade 2& 3 Investment Grade - High safety AA
Grade 4 Investment Grade -Adequate safety A
Grade 5 Investment Grade - Moderate safety BBB
Grade6 & 7 Investment Grade - Minimum safety BB
Grade 8, 9& 10 Do not Lend Below BB
'* The application of '+' (plus) or '-' (minus) signs associated with the rating category would have the
same risk weights as prescribed by the norms.

IIFCL shall follow the lower credit rating in case of the conflicted between the external
rating agency and internal rating. Further to note that once the account is rated by the
external rating agency, its tenor will, as per RBI guidelines, be 15 months. IIFCL will
follow the RBI guidelines, which stipulates that the rating agency should have reviewed
the rating at least once during the previous 15 months.

33IPage
115'

Chapter A- 6
Risk &Pricing

34IPage
 116
Iraclia
Iarsfrs.trutturae
Firmaca
Corrhyssw Lirraitad
1 1 F C

Each project under infrastructure has different risk profile and magnitude of risks differs
from project to project. The policy lays down a detailed risk which can be an illustrative
one and not an exhaustive one.

The whole exercise of identification, allocation and mitigation of risk to be followed by

IIFCL at the stage of appraisal by way of due diligence is explained in brief in the following
manners.

i) Construction risk - This is referred to as completion, development and cost overrun.

ii) Sponsor risk - Sponsors risk is closely associated with construction risk /
completion risk. It may be broken down into two elements :
a. equity commitment
b. corporate strength
iii) Operating risk - it consists of three components
a. Technical
b. Management
c. Cost

The ability to achieve the desired level of affordable infrastructure service depends on the
optimum utilization of technology to be used, management quality, project execution and
cost of production by minimizing the following risks:

iv) Technology risk

v) Management risk
vi) Cost risk component
vii) Supply risk
viii) Environmental risk
ix) Force majeure risk
x) Interest rate risk
xi) Legal risk

2. Benchmark Rate:
In case of direct lending, IIFCL will align its interest rate with the lead bank/ institution.

Interest rate = Benchmark rate + Credit Spread

Credit Spread varies for a greenfield and brownfield project based on the rating assigned.

35IPage
117
Ai k India
1.1-cautrtaccm-.
Fir.artoe.
Coraapart', Limitcd
11FC1-.

The rate of interest charged by IIFCL shall be determined on the basis of the benchmark
rate which will be arrived at considering the average cost of funds including administrative
cost, average return on net worth and cost of guarantee fees, which Resources and Treasury
Department will review on quarterly basis and apprise the Credit Department.

IIFCL will also look at the other factors for fixing the price mentioned as under:-
1. Credit rating
2. Tenor of the facility with reset clause
3. Aligning to the competitive scenario
4. Spread in terms of cost of funds
5. Consistent track record and association with the Bank / Lender
6. Credit worthiness of the Company / Group
7. Availability of liquidity and possibility of its deployment at the market rate

Typically, credit spread over the Benchmark Rate depends upon following factors (as per
IIFCL's internal rating assessment model).

Risk Weights
Risk Categories (%)
Promoter's Risk 10
Regulation/Policy Risk 5
Financial Risk 13
Completion/ Execution/ Maintenance/
50
Operation Risk
Business Risk 22
Total 100

2.1. Promoter Risk

Depends upon
a. Experience of the lead sponsor of the project, its financial capabilities, project
management skills etc.
b. Promoter commitment (capital to be infused) in the project. More the commitment
lower the risk
c. Syndicated cost as a proportion of approved cost (Less the better). In case of private
projects, general trend in the market like cost base projects etc. should be
considered.

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Infrastructur e
Fina ce
CoxIntrwarky Limited
11 F C

2.2. Regulatory and policy risk

Depends upon
a. The government policy applicable for an industry during each stage of the project
b. Relationship between the Centre and the State, availability of State Support
Agreements, favorable PPP laws and presence of a PPP cell (for effective
monitoring and control).

2.3, Financial Risk

Depends upon
a. Reasonability of project assumptions, project ratios (like DSCR, Debt to equity,
Project IRR, Fixed asset coverage ratio etc)
b. Sensitivity to project revenue and project cost (lower the sensitivity lower the risk),
breakeven period and the remaining concession period after the breakeven.
c. Degree of exposure to interest rate and exchange rate risk

2.4. Completion/Execution/Maintenance/Operation Risk

Depends upon
a. Financial closure/ tying up of funds, flexibility of the promoters to raise additional
resources
b. The number of clearances obtained by the projects, the relevance of those clearances
and the expected hurdles in obtaining the remaining clearances if any.
c. Construction period (more the construction period, greater the risk)
d. Land acquisition - This is the single most critical factor that could delay any project.
However, due importance should be given to an influential sponsors who could aid
the speedy process of land acquisition.
e. Transparency in the bidding process (both tariff based and bidding process) -leads
to better pricing of the project.
f. Reputation of the Design Consultant to have an idea of the quality of the design
done
g. Technology proposed to be used for the project. Additionally, the technology risk
can also be assessed by identifying the strengths/ weakness/ reputation of the
consultant/ sponsor engaged for the design of the project.
h. Contractors (EPC and O&M) credit-worthiness (as construction involves high risk
and possibility of losses to the contractors/ slippage from commitments etc.) and its
experience in the projects of similar nature.
i. Safeguards in the contracts available for the lenders
j. The reputation, capability, past track record and credibility of the O&M contractor

37IPage
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:nt '. truet.
Fin
A, Canavan,' Limited
IIFOL.

k. Operating efficiency various factors like efficiency in toll collections in roads; plant
-

load factors, fuel risk etc for power sector; Pricing ability impacting Aeronautical
revenue for Airports; and labor productivity, average ship turnaround, Berth
Throughput etc for ports; etc.
1. External risk Presence of any competitive/ alternate routes/ ports etc. In case of
-

roads, the feeder roads or connection roads that may have to be linked to the project
road so as to enable commercial operation of the road forms a key external risk to
the project. This risk can be mitigated if the control over construction of such roads
is with the project sponsors.

2.5. Business risk

For various sectors, depends upon
1. Demand and Supply risk, counter party risk (creditworthiness), pricing ability,
appropriateness of pricing and general willingness of the users to pay, competition,
demand and supply position, location of the project, potential for supplemental
revenue, off-take risk, Environmental / Social Impact etc.
2. In respect of loans and advances to borrowers, who are not covered by the credit risk
assessment (CRA) system, changes in rates of interest will be advised periodically.

2.6 Various Risk Factors and Mitigants:

Power Projects:
Type of Risk
Pre Construction Delay Risk
Finalisation of key contracts Project Company
Approvals and permits
Construction Risk
Land Availability
Cost overrun
Allocated to Mitigation Measures
Signing of all key contracts
made a condition precedent
Project Company / EPC Obtaining all approvals
Contractor / Promoters and clearances to be made a
condition precedent.
Project Company Signing of land lease
agreement to be made a pre
commitment condition.
Project Company / EPC Fixed Price Turnkey
Contractor / Promoters contracts on a completed
cost basis, risk on non EPC
cost to be borne by Project
Co / Promoters.

38IPage
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indv

ik
11 F C
I.frascructur.
Finemsca
Company it.eci

Time overrun Project Company / EPC Liquidated damages for

Contractor / Promoters non completion for EPC
contracts.
Delay in transmission Project Company / Off- Entering into suitable
agreements taker contract made as pre-
disbursement condition.
Damage / Construction Project Company / EPC Commercial insurance
Contractor / Insurance coverage sought for all
Company associated risks.
Operational Risk
Equipment EPC Contractor / Reputed EPC Contractor,
underperformance Equipment Supplier / equipment vendor,
Project Company experienced power plant
sponsor
Environmental EPC Contractor / Clearance from MoEF
requirements Equipment Supplier / required.
Project Company
Fuel Supply Risk Fuel Supplier / Project Fuel Supply Agreement for
Company committed supply of fuel,
liquidated damage in case of
short supply of fuel.
Fuel Price Risk Fuel Supplier / Project Fuel Supply Agreement for
Company longer tenor with renewal
option. Price fixed during
initial agreement period with
provision for price increase
linked to reputed price
benchmark.
In case of imported fuel,
proper arrangement to cover
currency exchange risk.
Fuel Transportation risk Fuel Supplier / Fuel Transportation agreement
transporter / Project with pre determined freight
Company rate with provisions for
periodical increases.
In case of imported fuel,
arrangement for port facility
should be tied up.
Evacuation Risk Off taker Payment of deemed
generation charges by the off
taker in case it is unable to
evacuate power. _

39IPage
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Adk 1 :;1.-" ..-...t‘.r.

Ft.....
IIFC1.. Corrnparty Lim ited

Payment risk Power Off taker / Credit enhancement

Force Majeure Risk
Equity infusion risk
Termination risk
Project Company mechanism like LC, Escrow
etc.
EPC Contractor / Covered by suitable insurance
Project Company / arrangements.
Insurer
Promoters Higher upfront equity infusion
by the promoters before debt
draw down. Tie up of entire
equity required for the project
and set time frame for
bringing the same.
Balance to be brought in
proportion to the debt
d rawd own.
Promoters / Project The project will be bought out
Company by other promoters at a buy
out price covering outstanding
dues of existing lenders.

Road Projects:
Risk Factor Responsibility Mitigation
Project Development Phase
Land acquisition Licensor Land to be in possession. If any balance land
remains to be acquired, follow-up with
NHAI and remedial steps of action to be
taken.
Project Construction Phase
Project completion Promoters, Company Good track record of EPC Contractor,
risk & EPC Contractor transparent bidding process.
Fixed-time contract with adequate
Liquidated Damages and Fixed price with
cap on the escalation.
Cost increase Project Company / Construction and O&M contract on a fixed
risk Promoters price basis and with limited escalation
clause.
Adequate contingency provision and
insurance cost for unforeseen circumstances
to be built into the project.
Strict monitoring by the project company
through appointment of independent
Engineer.

401 Page
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Irtcli"
lasfrastructur.
Fisancet
Company Limited
11.7C1-

Inflation risk Project Company EPC Contract to be fixed price and provide
sufficient contingency.
Operation Phase
Price risk Project Company/ Toll rates should be linked to inflation as
Licensor per Concession Agreement.
Shortfall in Traffic Project Company/ Traffic studies done by reputed traffic
Licensor consultants for Bank/ NHAI/ Company.
A cushion of 4-5 years (gap between ending
of repayment period and concession period)
is desirable. Otherwise credit enhancements
need to be put in place.
Credit enhancements in the form of DSRA
etc may be explored.
Leakage of toll Licensor Licensor (generally the govt.) to provide
revenue legal support to penalize the non-payers.
Existing alternative routes and possibilities
for traffic diversion need to be investigated
before sanction.
O& M risk Project company O&M cost to be frozen.
Force Majeure risk Project Company / Comprehensive insurance coverage
Insurer Provision in Concession Agreement to
increase the concession period equal to the
period of the event.
3. Direct Lending
3.1 Rate of Interest
(i) As per the Board's approval, the rate of interest to be charged by IIFCL under
direct lending would be benchmark rate of IIFCL + 2% spread or Lead Bank rate
whichever is higher, w.e.f 1st April 2012 for new proposals and retrospectively
for existing loan accounts.
(ii) As per the SIFTI, the rate of interest charged by IIFCL shall be determined on the
basis of its Base Rate plus premium which will be arrived at on the basis of
average cost of funds including administrative costs, average return on networth
and cost of guarantee fee etc.
(iii) Accordingly, it is proposed that in respect of consortium, proposals on pricing
for improvement can be considered only after critically examining the credit
facilities granted by other banks and the pricing offered by them and justifying
the need to extend such concessions. While recommending the same in respect of
new proposals, concessional pricing should be justified on the basis of strategy to
build up a relationship or gain entry into an existing consortium.

41IPage
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Irtfrastriatttee
Firismce
Ithik Limited
1 1 F C L Comps.",

(iv) Keeping in view of above, the following pricing mechanism is proposed:

External PPP Public PPP (Toll Non- Coal based Coal

Rating / (Annuity Sector / Fee PPP Projects based
Internal Road) (Fee based) Projects (PPP Projects
Rating Projects based) Projects /Public (Non PPP)
Projects sector)
AAA/ BR + BR + BR + 155 BR + BR + 205 BR + 230
Grade 1 105 bps 130 bps bps 180 bps bps bps
(10.70%) (10.95%) (11.20%) (11.45%) (11.70%) (11.95%)
AA/Grade BR + BR + BR + 165 BR + BR + 215 BR + 240
2& 3 115 bps 140 bps bps 190 bps bps bps
(10.80%) (11.05%) (11.30%) (11.55%) (11.80%) (12.05%)
A/ BR + BR + BR + 175 BR + BR + 225 BR + 250
Grade 4 125 bps 150 bps bps 200 bps bps bps
(10.900/u) (11.15%) (11.40%) (11.65%) (11.90%) (12.15%)
BBB/ BR + BR + BR + 185 BR + BR + 235 BR + 260
Grade 5 135 bps 160 bps bps 210 bps bps bps
(11.00%) (11.25%) (11.50%) (11.75%) (12.00%) (12.25%)
BB / BR + 145 BR + BR + 195 BR + BR + 245 BR + 270
Grade6 & bps 170 bps bps 220 bps bps bps
7 (11.10%) (11.35%) (11.60%) (11.85%) (12.10%) (12.35%)

BR Benchmark Rate, currently at 9.65% arrived as below:

-

Particulars Percentage
Weighted Cost of borrowed funds 6.73
Negative carry of liquidity 0.00
Un-allocated Overhead cost 0.17
Average Return on networth 1.93
Market Volatility Factor 0.82
IIFCL Benchmark Rate 9.65

Notes :

a) The application of '+' (plus) or '-'(minus) signs associated with the rating category would
have the same risk weights as prescribed by the norms.
b) Fee based projects are those projects where projects are awarded through bidding process and
collections are made through regulated tariffs.

42IPage
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Infrastarmact.r.

Coxrapany Limited
11 F C L

c) The rates would be determined in line with IIFCL's internal Risk Policy from time to time.
The rate of interest shall be floating. Credit ratings (both external and internal) older than 15
months may not be taken into consideration for pricing.

d) At the time of Annual Review, if the account is rated upward, the benefit of rate would go to
the borrower. In the event of downward rating, the borrower(s) will have to pay higher rate of
interest.

e) The rate of interest will be reviewed sector wise depending upon the market dynamics.

I) The above project classifications are based on the perceived risks. IIFCL shall not generally
lend to any projects with rating lower than BBB (or Grade 5 of Internal Rating) without
specific approval of the Board. Majority of the projects are likely to fall under BBB rating
grade and the spread for IIFCL shall range between 135 basis points to 260 basis points over
the benchmark rate. For lending to any project with a lower rating (6 & 7), specific approval
of the Board will be required.

g ) Valid credit rating from the credit rating agency approved by RBI will be taken as basis.

h) In the event of non availability of External Credit Rating (ECR) of the SPV initially, the rate
of interest shall be based only on IIFCL's internal rating. The promoter's capability and
financial strength shall be captured in the internal rating assessment.

i) The SPV/ borrower company to get ECR within 6 months from the date of 15t disbursement.
Thereafter the rate of interest shall be revised based on the ECR of the SPV. In case, the
borrower does not obtain ECR within 6 months time, a penal interest of 0.5% will be charged
over and above the applicable rate of interest in line with the consortium.

j) The above rates shall be non - discretionary and non - discriminatory.

3.2 Reset
On the date of reset, the interest rate shall be governed by the following:
• The Benchmark Rate of IIFCL. (To be reviewed once in a quarter or as and when
required).
• Revised risk profile of the project, as indicated by the migration of the external/ internal
risk rating.
• Internal Risk Policy of IIFCL.

43IPage
125
IncUs
Ark
IIFC L
Ir.froutsnacture
Fignufar.c.
Company Limited

3.3. Penal Interest

In terms of extant Reserve Bank of India guidelines, banks have been advised about the
overall penal/ additional interest to be charged by banks, which should not exceed 2
percent over and above the rate of interest applicable/ normally charged to the respective
borrower.

Consequent upon substantial deregulation of interest rates on loans and deposits by

Reserve Bank of India, individual banks/ institutions have been empowered to formulate
policy on lending rates taking into account their cost of funds, the underlying credit risks
etc.

The policy Guidelines on charging of Penal Interest contain, inter alia, the definition,
applicability, reasons, quantum of penal interest, amount on which penal interest shall be
levied, period for which penal interest has to be charged, rate of penal interest as well as
the competent authority for relaxation/ waiver of penal interest.

i. Applicability: Penal rate of interest shall be applicable for all the term loans
advanced by the company.
ii. Broad areas where penal interest will be charged by the company:
Default in repayment of loans as well as in borrowing covenants/terms of sanction.

The aggregate penal/ additional interest should not exceed 2 per cent over and above the
rate of interest applicable/charged to the borrowers.

Discretionary powers to relax/waive penal rate shall be with competent authority i.e.,
Board of Directors.

3.4. Upfront Fee

In all cases of new accounts upfront fee / processing charges (non-refundable and non-
adjustable) not less than 0.25% (excluding service tax) would be recovered before
disbursement.

3.5. Pre-payment Charges

Prepayment charges are to minimize the effect on Net Interest Income (NII) and Asset
Liability mismatch in the event of prepayment/non-availment of term loan facility
sanctioned.

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11FCL Core.c..r.y Limited

Guidelines:
➢ Sanctioning authorities shall stipulate prepayment /commitment charges in
sanction terms.
➢ Prepayment charges shall be applicable not less than 0.50% on the prepaid amount
in the event of the agency remits prepayments voluntarily.
➢ There will no prepayment charges in the case the agency remits bar repayments at
the time of reset of rate of interest. Any part prepayment shall be pro-rata amounts
the lenders, unless otherwise agreed to by the lenders.
➢ Prepayment/commitment charges shall be applicable to new sanctions/ renewal.

3.6. Commitment Charges

The borrower shall pay to the lenders a non-refundable commitment fee not less than
1.00% of the amounts undrawn beyond 2 quarters in variance with the drawdown
schedule.

Provided that the borrower may vary the drawdown schedule by giving notice thereof to
the lenders not less than 30 days prior to the commencement of the quarter. The fee would
be calculated on the basis of the drawings not made and the number of days deviated from
the drawdown schedule.

3.7. Annual Review Charges

All accounts shall be reviewed annually. The annual review charges may be as described
below:

Loan Amount Annual Review charges

Upto Rs.100cr Rs.56,000/-
Rs.100cr to Rs.500cr Rs.1,00,000/-
Rs.500cr and above Rs.2,00,000/-

3.8. Revalidation Charges

Sanction letter issued by IIFCL will have a validity period of 12 months from the date of
issue. In the event of sanction gets lapsed, the borrower needs to remit revalidation charge
of Rs.1,00,000/- for a loan amount up to Rs.100 crore and Rs.2,00,000/- for a loan amount
more than Rs.100 crore.

45IPage
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Alk 1:Z". tructure
IIFCL Cm-wiper,. Limited

3.9. Charges for Modification of Sanction Terms and Conditions

The borrower needs to remit a fee amounting to Rs.1,00,000/- for a loan amount up to
Rs.100 crore and Rs.2,00,000/- for a loan amount more than Rs.100 crore in the event of any
modifications to sanction terms and conditions carried out by IIFCL in line with lead
lender.

3.10. Waiver of Prepayment, Upfront Fee, Commitment Charges, Revalidation Charges,

Charges for Modification of Sanction Terms and Conditions and Review Charges
In terms of delegation of power to CMD by Board (the details of which is mentioned under
the head Delegation of Powers to CMD) the prepayment, upfront fee, commitment charges,
revalidation charges, charges for modification of sanction terms and conditions and review
charges may be reviewed based on the merits of the same in order to align with the Lead
Bank and other lenders in the consortium.

4. Takeout Finance Scheme (TFS) (Revised)

It is proposed that we may consider charging Rate of Interest for TFS based on the revised
risk profile of the project (after achievement of COD) and a valid credit rating from two separate
credit rating agencies approved by RBI as well as internal risk rating which may be as
detailed below:

4.1 Rate of interest

Sr. No External Rating of the SPV / Rate of Interest by IIFCL
company*
1 AAA (External rating) or Grade 1 Benchmark Rate + 25 bps
(Internal rating)
2 AA (External rating) or Grade 2& 3 Benchmark Rate + 40 bps
(Internal rating)
3 A (External rating) or Grade 4 Benchmark Rate + 60 bps
(Internal rating)
4 BBB (External rating) or Grade 5 & 6 Benchmark Rate + 80 bps
(Internal rating)
5 BB (External rating) or Grade 7 Benchmark Rate + 100 bps
(Internal rating)

i. PPP (Annuity based Road) Projects: In view of the projects being PPP with
Annuity, indicating high safety, the above rates shall be applicable.
ii. Public Sector (Fee based) Projects : The projects under Public Sector (fee based),
a premium of 10 basis points shall be applicable in addition to the above rates

46IPage
 .. 1l ..
128
Ak ::"
IIFC1-
Fi...
C.
r,..
71 t r'''"'''

due to adequate safety.

iii. PPP (Toll / Fee based) Projects: The projects being PPP (Toll / fee based), a
premium of 20 basis points shall be applicable in addition to the above rates due
to moderate safety.
iv. Non-PPP Projects: A premium of 30 basis points shall be applicable in addition
to the above rates in view of the Non- PPP nature of the projects.
v. Thermal power Projects (PPP/ Public sector) - 40 basis points due to high risks
arising out of coal linkages.
vi. Thermal power Projects (Non- PPP) - 50 basis points due to higher risks arising
out of coal linkages.

Accordingly, the details along with exvlanations are given hereunder:-

External Rate of PPP Public PPP Non- Coal Coal
Rating / Interest* (Annuity Sector (Toll / PPP based based
Internal Road) (Fee Fee Projects Projects Projects
Rating Projects based) based) (PPP (Non
Projects Projects /Public PPP)
sector)
AAA / BR + 25 BR + 25 BR + 35 BR + 45 BR + 55 BR + 65 BR + 75
Grade 1 bps bps bps bps bps bps bps
(9.90%) (9.90%) (10.00%) (10.10%) (10.20%) (10.30%) (10.40%)
AA/Grade BR + 40 BR + 40 BR + 50 BR + 60 BR +70 BR + 80 BR + 90
2& 3 bps bps bps bps bps bps bps
(10.05%) (10.05%) (10.15%) (10.25%) (10.35%) (10.45%) (10.55%)
A/ BR + 60 BR + 60 BR + 70 BR + 80 BR + 90 BR + BR + 110
Grade 4 bps bps bps bps bps 100 bps bps
(10.25%) (10.25%) (10.35%) (10.45%) (10.55%) (10.65%) (10.75%)
BBB/ BR + 80 BR + 80 BR + 90 BR + BR + BR + BR + 130
Grade 5 & bps bps bps 100 bps 110 bps 120 bps bps
6 (10.45%) (10.45%) (10.55%) (10.65%) (10.75%) (10.85%) (10.95%)
BB / BR + 100 BR + 100 BR + BR + BR + BR + BR + 150
Grade 7 bps bps 110 bps 120 bps 130 bps 140 bps bps
(10.65%) (10.65%) (10.75%) (10.85%) (10.95%) (11.05%) (11.15%)

*BR - Benchmark Rate, currently at 9.65%

k) The application of '+' (plus) or '-'(minus) signs associated with the rating category would
have the same risk weights as prescribed by the norms.
1) Fee based projects are those projects where projects are awarded through bidding process and
collections are made through regulated tariffs.

47IPage
129
Imdiw
I .sd
Fit-tette.
IIFCL Centrum," Limited

in) The rates would be determined in line with IIFCL's internal Risk Policy from time
to time. The rate of interest shall be floating.

n) At the time of Annual Review, if the account is rated upward, the benefit of rate
would go to the borrower. In the event of downward rating, the borrower(s) will
have to pay higher rate of interest.

o) The rate of interest will be reviewed sector wise depending upon the market dynamics.
I)) The above project classifications are based on the perceived risks. IIFCL shall not generally
lend to any projects with rating lower than BB (or Grade 7 of Internal Rating) without
specific approval of the Board. Majority of the projects are likely to fall under BBB rating
grade and the spread for IIFCL shall range between 80 basis points to 130 basis points over
the benchmark rate.

q) In case of conflict of credit rating between two rating agencies or with internal credit rating,
the lowest rating will be reckoned for the purpose of pricing.

r) The above rates shall be non - discretionary and non - discriminatory.

4.2 Reset
On the date of reset, the interest rate shall be governed by the following:
• The Benchmark Rate of IIFCL.(To be reviewed once in a quarter or as and when
required).
• Revised risk profile of the project, as indicated by the migration of the external/
internal risk rating.
• Internal Risk Policy of IIFCL,.

5. Penal Rate of Interest

In terms of extant Reserve Bank of India guidelines, banks have been advised about the
overall penal/ additional interest to be charged by banks, which should not exceed 2
percent over and above the rate of interest applicable/ normally charged to the respective
borrower.

Consequent upon substantial deregulation of interest rates on loans and deposits by

Reserve Bank of India, individual banks/ institutions have been empowered to formulate
policy on lending rates taking into account their cost of funds, the underlying credit risks
etc.

48IPage
 130
Infrastructure
Firsannce
I I F C L Comparav Limited
Limits

The policy Guidelines on charging of Penal Interest contain, inter alia, the definition,
applicability, reasons, quantum of penal interest, amount on which penal interest shall be
levied, period for which penal interest has to be charged, rate of penal interest as well as
the competent authority for relaxation/ waiver of penal interest.

iii. Applicability: Penal rate of interest shall be applicable for all the term loans
advanced by the company.
iv. Broad areas where penal interest will be charged by the company:
Default in repayment of loans as well as in borrowing covenants/terms of sanction.

The aggregate penal/additional interest should not exceed 2 per cent over and above the
rate of interest applicable/charged to the borrowers.

Discretionary powers to relax/waive penal rate shall be with competent authority i.e.,
Board of Directors.

6. Processing charges
In all cases of new accounts processing charges / upfront fee (non-refundable and non-
adjustable) not less than 0.25% (excluding service tax) would be recovered upfront before
disbursement.

7. Pre-payment Charges
Prepayment charges are to minimize the effect on Net Interest Income (NII) and Asset
Liability mismatch in the event of prepayment/non-availment of term loan facility
sanctioned.
Guidelines:
➢ Sanctioning authorities shall stipulate prepayment /commitment charges in
sanction terms.
➢ Prepayment charges shall be applicable not less than 0.50% on the prepaid amount
in the event of the agency remits prepayments voluntarily.
➢ There will no prepayment charges in the case the agency remits bar repayments at
the time of reset of rate of interest. Any part prepayment shall be pro-rata amounts
the lenders, unless otherwise agreed to by the lenders.
➢ Prepayment/commitment charges shall be applicable to new sanctions/ renewal.

49IPage
131
Indies
Inf:ytraactxa rc

Ak
IIFCL
Ficsekraca
Company Limixcd

8. Commitment Charges
The borrower shall pay to the lenders non-refundable commitment fee not less than 1.00%
of the amounts undrawn beyond 2 quarters in variance with the drawdown schedule.

Provided that the borrower may vary the drawdown schedule by giving notice thereof to
the lenders not less than 30 days prior to the commencement of the quarter. The fee would
be calculated on the basis of the drawings not made and the number of days deviated from
the drawdown schedule.

9. Annual Review
All accounts shall be reviewed annually. An annual review fee of Rs 56,000/- is to be
charged from the borrower's account.

10. Waiver of Prepayment, Processing, commitment and Review Charges

In terms of delegation of power to CMD by Board (the details of which is mentioned under
the head Delegation of Powers to CMD) the prepayment, processing, commitment and
review charges may be reviewed based on the merits of the same in order to align with the
Lead Bank and other lenders in the consortium.

50I Page
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lnd i.

Chapter -- 7
Direct
Lending
through
Consortium

511 Pape
133
Indraucructur.
Fin
11FCL Company Limited

Lending Under Consortium

IIFCL's objective is to provide long term finance to commercially viable infrastructure
projects giving overriding priority to Public Private Partnership Projects and also
supporting available long term debt resources. Generally, infrastructure projects are of long
gestation period and require huge investments. Therefore, IIFCL shall be participating in
Lending under consortium arrangement. As the credit in Infrastructure sector has its own
inherent risks, consortium arrangement is always preferred to share the risk with other
Banks.

Under direct lending the lead Bank/ the lead arranger shall present its appraisal for
consideration of IIFCL. Based on such appraisal IIFCL may consider and approve funding
to the extent specified in the Scheme i.e., the total lending to any company shall not exceed
20% of the total project cost or 80% of the lead bank funding whichever is less. The IIFCL
will not be requiring to carry out any independent appraisal. As per the scheme in PPP
projects prior to inviting offers through the open competitive bid to the concerned
government / statutory entity may seek in-principal approval of IIFCL for financial
assistance. However, any indication given by IIFCL shall not be treated as final
commitment for the financial assistance which will be ultimately governed by the appraisal
of the lead bank.

Apart from the senior debt IIFCL may also consider and approve the Subordinated debt

Subordinate Debt
"Under Clause 7.1(d) of SIFTI (Revised), IIFCL has been allowed by the Government to
provide Debt which ranks lower in security than the project Debt carrying a pari-passu
charge (the "subordinate debt") to finance the PPP projects subject to the following
conditions:

(i) The project should have been awarded through open competitive bidding;
(ii) It should have been approved by the PPPAC (Public-Private-Partnership Approval
Committee) under the Guidelines for Formulation, Appraisal and Approval of PPP
projects or by the Empowered Institution under the Guidelines for Financial Support
to PPP in infrastructure;
(iii) The Concession Agreement should provide for an Escrow Account that would
secure the annual repayment of subordinate debt before returns on equity are paid.
(iv) In case of termination of concession agreement, the Concessioning Authority will
pay in terms of termination payment at least 80% of the subordinate debt on account

52IPage
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India
Irbfranstruct■are
o.
Aik
IIFCL Carnyorw Licnitact

of a concessionaire default or Concessioning Authority default, during operation

period of the concession in the escrow account as mentioned in the Model
Concession Agreement (MCA). Where MCA is not available, a similar provision
should be incorporated.
(v) Subordinate debt shall not exceed 10% of the total project cost and shall form part of
the maximum limit of 20% as specified in para 7.2 of the SIFTI (Revised); and
(vi) Subordinate debt to be borrowed by the project company from any or all sources
shall not exceed one half of its paid up and subscribed equity.
(vii) Subordinate debt lenders shall have second charge on all assets (including receivables)
of the Borrower, both present and future, to secure the subordinate debt as
mentioned in the loan agreement. The said second charge to secure subordinate
debt shall rank pari-passu with all lenders for their sub ordinate debts. The above
mentioned second charge of subordinate debt lenders shall be subordinate to the
first pari-passu charge of the senior lenders for their senior debts; and
(viii)Subordinate debt shall not be converted into equity.

Detailed Appraisal for Direct Lending

After the project is given in principle in acceptance by New Business Committee (NBC),
IIFCL undertakes the project for detailed appraisal by way of due diligence. Although the
basic project finance techniques followed for appraising the viability of various projects are
more or less the same. Each project shall be appraised in proper sector perspective taking
into account its financial capital structure, size and scope. The ultimate objective in any
detailed appraisal exercise is to ascertain the viability of a project with a view to ensuring the
repayment of the borrower's obligations under the Bank's term and conditions of the
assistance.

The purpose of appraisal is to ascertain whether the project is sound - technically,

economically, financially and managerially and is ultimately viable as a commercial
proposition. The appraisal of a project broadly involves the evaluation of:

i. Technical Feasibility
- To determine the suitability of the technology selected and the adequacy of the
technical investigation, and design;
ii. Financial Feasibility
To determine the accuracy of cost estimates, suitability of the envisaged pattern
of financing and general soundness of the capital structure;
iii. Commercial Viability

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Infrastructure
Ficsaxwee
Comp...my Limited
IIFCIL.

-
To determine the extent of profitability of the project and its sufficiency in
relation to the repayment obligations pertaining to term assistance; and
iv. Managerial Competency
- To ascertain that competent men are behind the project to ensure its successful
implementation and efficient management after commencement of commercial
production.
v. Environmental concern
To ascertain whether the project is in compliance with the various
environmental provisions in force
- To carry out an examination of these aspects, a detailed project report (DPR) is to
be provided by the customer from an acceptable consultant/project advisor/
merchant banker. Wherever considered necessary, benefit of a second opinion
may be required
vi. Economic Viability
- To determine the conduciveness of economic parameters to setting up the
project and their impact on the scale of operations;

Consultants
Appointment of LIE/ LIA/ LLC
Given the complex nature of the infrastructure projects - technical aspects, contractual
arrangements and insurance requirements for risk mitigations - services of various
consultants are required for detailed due diligence and advice during the appraisal and
post-sanction credit processes.

Lenders Independent Engineer

As a part of due diligence exercise, the lenders usually appoint a Lenders' Independent
Engineer (LIE). An LIE is generally a reputed Consultancy / Engineering firm with
relevant experience in evaluating large infrastructure projects. The LIE carries out an
independent study of the project, examines the project cost and related aspects, project
design and technical viability issues, financing model etc. in the pre-financial closure stage,
monitors the construction process and generates monitoring reports to enable the lenders
to follow-up the project. The detailed scope of work of an LIE is given below:

1. Scope of Work
The activities of the LIE would be spread across three phases as described below.
i. Phase I- Project Review and Assessment (Phase I shall commence from the date of
appointment of the LIE and continue till financial close.)

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ii. Phase II- Construction Monitoring

Performance Testing
Phase H shall commence from financial close and shall continue till two months after
COD (commercial operations date).
iii. Phase III- Annual Operational Review (Optional)

Scope of work under different phases is broadly described hereunder. However, this is not
an exhaustive list and issues specific to a project requiring comments of the LIE may have
to be added.

Phase I - From Commencement Date till financial close

Scope of work under this phase will broadly cover:
i. Review the technical aspects of the Project including choice of technology, technical
specifications and time schedule and adequate provisions have been made for
unknown or variable elements in the schedule, based on a review of the relevant
project contracts, DFR and construction schedule as proposed by the Company. The
project shall be defined as a composite of on-site and off-site facilities for which
financing are being sought. If any facilities necessary for commercial production and
off-take are to be outsourced, review thereof will also form a part of the scope.
ii. Review and comment on the envisaged configuration and ability to produce the
projected product output, given the inputs.
iii. Comment on the adherence of the technical and commercial aspects of the project
contracts including performance guarantees, warranties, liquidated damages,
performance bonuses with respect to the general industry practice and adequacy of
these to mitigate project risks
iv. Review the Project Cost including the EPC cost, all equipment procured under the
bidding procedure, other contracts, adequacy of contingencies and comment on the
appropriateness and reasonableness and comparison of the cost estimate with other
similar projects and Base Case Business Plan including O&M costs (excluding
financing costs).
v. Technical appraisal and review of the Project's conceptual design, engineering,
drawings, construction plans, material procurement schedule and operation plans.
In doing so LIE shall also review the projected construction programme,
expenditure schedule and adequacy of the arrangements made to achieve the
projected construction schedule.

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vi. Verification/support of financial model inputs and all technical inputs of the project
pro-forma. How well the assumptions & projections are supported by contract
guarantees, performance testing, quality of design / equipment, etc.
vii. Review of the Environmental Impact Assessment Report prepared for the project
with an assessment of outstanding/future risks and methods to mitigate the same;
viii. Advise the Lenders on the steps proposed to be taken by Company for protection of
the environment and avoid damage to persons and property. Also, comment on any
material environmental issues that may have an impact to proceed or complete the
project.
ix. Determine a limited number of downside scenarios which address possible failure in
meeting project milestones.
x. Preparation of a detailed Initial Project Assessment Report including an assessment
of the construction and maintenance risks and the adequacy of the risk mitigation
measures,
xi. Apprise the Lenders of Resettlement & Rehabilitation issues, if any.
xii. Review the status of obtaining necessary approvals, permits, licenses, project
completion certificates, etc. as may be required by Company for implementation of
the Project,
xiii. Comment on the adequacy of approval/ clearances for starting construction,
xiv. Review of proposed Performance Testing Criteria,
xv. Review of the proposed Draw down schedule,
xvi. Attending meetings with the Lenders as may be required,
xvii. Coordinate with the LIA for providing inputs for designing / analyzing adequacy of
insurance package,
xviii. Review of performance shortfalls compared to LDs.
xix. Review the consistency of individual equipment / contracts warranties with the
overall plant performance guarantees by the PMC and their level of support.
For the scope of services related to Phase I, the LIE shall submit a draft Due Diligence
report followed by a final Due Diligence report taking into account observations from the
lenders /Company.

Phase II From financial close till two months after commercial operations date
-

Scope of work under this phase will broadly cover:

Construction monitoring
i. Review the bid procedure/ selection of bidders and the progress of issue of bids/ m
procurement contracts for conformity with the project schedule

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ii. Review and comment on the cost of the equipment bought under bidding process
and its design / technical specifications, to be in line as originally envisaged. Any
adverse variations should be brought to the notice of the lenders.
iii. Review the projected construction programme, expenditure schedule and adequacy
of the arrangements made at the site to achieve the projected construction schedule
at the specified periodicity (monthly, bi-monthly, etc.)
iv. Review, assist and advice about the progress of work at the specified periodicity
(monthly, bi-monthly, etc.) vis-a-vis program of construction and milestone dates as
per the relevant project documents.
v. Review of Contractor's invoices and supporting documents at the specified
periodicity (monthly, bi-monthly, etc.) and Certification of the capital cost incurred
and approval of disbursements during construction
vi. Spot verification of the quality of the construction work vis-a-vis approved
specifications and periodic progress reports to Lenders in this regard.
vii. Review and monitor quality control tests carried out. Assessment of variation
orders. Monitor adherence to environmental regulations and report on any
present/future risks that arise during project implementation.
viii. Review the status of obtaining necessary approvals, permits, licenses, project
completion certificates, etc. as may be required by Company for commencing
commercial operations.
ix. Provide necessary assistance to Lenders in case of any disputes.
x. Attending meetings with the Lenders as may be required.
xi. Advising lenders of any delays/ major problems that may arise in future and
conflict between the borrower & various contractors/ equipment suppliers, etc. and
adverse development that would affect the lenders.
xii. Any other aspect on which the lenders/Company may like comments of the LIE.

Performance testing
During start-up and performance testing, the Independent Engineer will:
i. Monitor on site overall plant performance tests including, data collection
procedures, testing instrumentation, and plant operating and testing personnel
throughout the plant performance test.
ii. Reviews the test reports prepared by contractor or contractor's testing consultant
and verify data reduction procedures and correction calculations to the various
contracts guarantee conditions.
iii. Facility design versus actual installation.
iv. Compliance with health, safety and other regulatory requirements.

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v. Confirmation that required governmental permits and licenses have been obtained
for operation.
vi. Certification of Performance Test Results.
Phase III Annual Operational Review
-

During this Phase, the LIE will:

i. Advise lenders if the operations and maintenance is being carried out as per
stipulated requirements.
ii. Review the O&M manuals and comment on their completeness and compatibility to
those of similar facilities. In particular, the scheduled maintenance and preventive
maintenance programs, maintenance dredging programs shall be reviewed.
iii. Review the actual performance in respect of performance parameters specified for
the project and in the O&M agreement.
iv. Review and evaluate conformance with scheduled maintenance, preventive
maintenance, and spare parts programs.
v. Conduct periodic site visits to assess overall operations. Any planned modifications
for the period since the last visit would be reviewed.
vi. Monitoring and reporting of statutory compliance including environmental
requirements.
vii. Provide recommendations regarding remedial measures for identified deficiencies,
which are appropriate to meet the lenders requirement.
viii. Attend meetings, etc. and brief the lenders as needed.
ix. Prepare and submit a report addressing all the issues mentioned above to the
lenders every quarter.
In addition to the aforesaid, the scope of services of the LIE, in all the phases, would
include advising Lenders on all technical matters in order to protect the Lenders interest
under the financing documents and all other project documents.
Lenders' Insurance Advisor (LIA)
LIA is required to advise on the insurance requirements for the project during construction
as well as operations phases.
Scope of Services
A broad Scope of Work/Services for Lenders Insurance Advisor (LIA) is as follows:

A. Financial Closure
(a) Prior to financial closure, LIA will prepare a report (a draft of which is to be provided
to the Lenders within an acceptable time period for all parties to review and comment
on) which will cover, inter alia, the following:

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i. Review all Project agreements/documents and comment on the insurance

requirements;
ii. Identify risks and interrelationship of risks associated with the Project, including,
without limitation, contractual risks, financial risks (relating to delay or
termination), political risks, risk associated with third parties, technical risks, or
the risk of business interruption and insurance implications for the Lenders and
Project as a whole;
iii. Overview of the insurance market conditions (both international and local) with
specific regard to capacity within the insurance market and cost in terms of likely
future premia payable to maintain an adequate level of cover;
iv. Research of Indian insurance legislation with assistance of the Lenders' legal
counsel and advise the Lenders and legal/ technical advisers of any implications
to the proposed construction and operational cover, as well as any implications to
the perfection of the Lenders' security interest in the insurance policies and
proceeds;
v. Based upon the main risks defined in (a) above, provide an opinion on the
structure and adequacy of the proposed insurance cover for the construction and
operational phases; and detailed policies, as available;
vi. Discuss the exclusions, deductibles and excesses applicable to the proposed
insurances and comment on any potential risks to the Lenders and what is
considered normally available;
vii. Confirm the market availability of the proposed insurance package and provide
an opinion as can be reasonably made, on the continued availability of this
coverage in the market;
viii. Provide a recommendation on the minimum financial rating standard of the
insurers (and re-insurers, as applicable);
(b) Liaise with the legal counsel and the Lenders with respect to the drafting of all
elements of the insurance requirements in the loan documentation and the perfection
of the Lenders' security interest in the insurance proceeds. Draft the schedule of
minimum insurance requirements.
(c) Liaise with the Lenders Engineer and the Lenders with regard to the cost in terms of
likely future premia payable to maintain an adequate level of insurance cover as
allocated within the financial pro-forma; and
(d) Immediately, prior to the financial close, the LIA will certify (in a form acceptable to
the Lenders or advice of any changes) that the required insurances are in place and
conform to the requirements of the loan documentation

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B. Construction Phase
a. Undertake a Risk Review of the Project, identify the major exposures and advise as to
how they can be mitigated by Insurance Cover/ Arrangements in line with good
industry practice including, but not limited to the following:
i. Physical Damage Risks to the Project facilities during the Construction Phase
ii. Advance loss of Profits and / or Business Interruption Risks;
iii. Employers/ Workman's Compensation, Third Party Liability insurance with
Cross Liability and/or Common Law Liability Exposures;
iv. Liability Risks (including Employers Liability, Marine, Cargo & Goods-in-
Transit);
v. Environmental Liability Risks including loss of risk to tile surrounding
property and
vi. Physical Damage risks to other assets such as offices, vehicles, plant, machinery
and equipment (s) etc.
vii. Sub-contractors insurances, if applicable
viii. Any other risks
b. Indicate the minimum Schedule of Insurance.
c. Review and comment upon the proposed Insurance Package including:
i. Suitability of Sums Insured;
ii. Adequacy of the Insurance Policy Wordings;
iii. Adequacy of sums insured and limits (taking probable maximum loss estimates
into account)
iv. Premium Costs and Projections;
v. Deductible Levels;
vi. Warranties and Exclusions;
vii. Identification of significant Residual Risks that are uninsured and comment on
their insurability e.g., those that are generally insurable, or have limited
insurability and/or difficult and/or expensive to insure;
viii. Insurance and alternative Project Insurance Structures having regard to cost and
availability;
ix. Identification of additional Insurance Protection for Lenders including the
availability of non-vitiation, assignments and loss payee clauses; and
x. Ensure compliance with all applicable legislation/ laws for the time being in
force.
d. Review and comment on the insurance related provisions in the Loan Documentation
/ Security Documents (including assisting Legal Counsel in the drafting of the
Minimum Schedule of Insurance). Ensuring proper insurance related documentation

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and also inclusion of insurance related relevant clauses in the Lenders' Loan
Documentation / Security Documents;
e. Review and comment on Secondary Insurance affected by the Borrower and/or other
Project Participants.
f. Review Local Insurance Law and its implications for the Project
g. Comments on the Financial Integrity of the selected Insurance Companies.
h. Reinsurance; and
i. Issue Insurance Report highlighting the Critical Issues raised for carrying out the
Scope of Work 1 to 8, confirming compliance with all Conditions Precedents of the
Loan / Security Documents and drawing together the conclusions on the above.

C. Operational Phase
a. Undertake a Risk Review of the Project, identify the major exposures and advise as to
how they can be mitigated by Insurance Cover / Arrangements in line with good
industry practice including, but not limited to the following
i. All Risks to the Project facilities during the Operational Phase;
ii. Loss of Profits and / or Business Interruption risks;
iii. Employers / Workman's Compensation, third party Liability Insurance with
Cross Liability and/or Common Law Liability Exposures
iv. Liability Risks (including Employers Liability, Marine, Cargo Goods-in- Transit);
v. Environmental Liability Risks including loss of risk to the surrounding property;
and
vi. Physical Damage risks to other assets such as offices, vehicles, plant, machinery
and equipment (s) etc.
b. Advise the Administrative Agent in monitoring Insurance Package, during
Operational Phase;
c. Prior to the project completion, audit and report that the Operational Insurance
Package is in accordance with the good industry practice;
d. Audit and report on the Annual Renewal of Operational Insurance Package in
general and with respect to the following in particular
i. Availability of Insurance and whether they are properly affected;
ii. Security of Insurers;
iii. Compliance with Schedule of Minimum Insurance requirements for
Operational Phase;
iv. Incorporation of the agreed Lenders' interest provisions in the insurance
Package;
v. Continuity of cover throughout Operational Phase;

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vi. Market availability of Insurance; and

vii. Inflation-and Capital Additions, which need to be reflected in the Sums
Insured.
e. Advice Lenders of any material Adverse Change in circumstances, which may
necessitate an immediate Review in whole or in part, of the Insurance Package.
f. Advise and assist in the negotiation of any changing requirements for the Insurance
Package.
g. Provide on-going advice, assistance and services on Risk and Insurance related
aspects of the Project, as required by Borrower and the Lenders from time to time;
h. Identify and comment on Residual Risks; and
i. Reinsurance

D. Advise the Lender on adequacy etc. of various Insurance Arrangements, Packages, the
Contractors' All Risks (CAR), Escalations, Extended Maintenance, Design Drafts, etc.
E. Advise the Lender on issues relating to Renewals, Reinsurance, Assignment of the
Policies, Settlement of Claims etc., on continuing basis.
F. Any other matter relevant to the Project in the considered view of the Lenders
Insurance Advisor. The scope of services provided above is not exhaustive but only
indicative and it shall be the sole responsibility of the Lenders Insurance Advisor to
render all consultancy and advisory services required to fulfill the obligations broadly
envisaged herein.

Lenders' Legal Counsel (LLC)

Project financing depends to a large extent for risk mitigation on the various
contracts/agreements that are entered into between various stake holders in the project.
Further, given the size of funding requirements, there would normally be more than one
lender involved. Foreign suppliers, contractors, lenders also participate. Services of reputed
legal counsel are, therefore, required for legal due diligence on the contracts etc. as well as
for drafting of the project specific loan documents.

Scope of Work
Project Documentation
a. Carry out legal due diligence of the Project Contracts / Agreements and advise the
Lenders on the risk sharing and comprehensiveness of the Project Contracts and
provide specific legal advice, as requested by Lenders, on all the Project Contracts,
inter alia, including the following:
i. Joint Venture/SPV Agreement by the Promoters

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ii. Memorandum/Articles of Association

iii. Shareholders Agreement
iv. Revenue Shortfall Agreement
v. Board Resolutions
vi. Concession Agreement
vii. State Support Agreement
viii. EPC Contracts

b. Title Documents pertaining to the properties of the Company (if any) Review and
comment on Project Contracts executed or to be executed,
c. Review and comment on the compliance of the obligations of the Company in terms of
the Agreements and on the guarantees obtained under the Project Contracts,
d. Provide a legal opinion on, inter-alia, the statutory and regulatory approvals and
consents required for the project and the validity of the project documentation,
e. Review and comment on any applicable laws, regulations, codes of conduct or similar
requirements, any rules of general law or any requirements of any regulatory body
with jurisdiction over the project,
f. Submit Legal Due Diligence Report covering all the aspects mentioned above, and
g. Any other matter at the discretion of Lenders.

Financing & Security Documents

a. Formulate and finalize drafts of documents as set forth below, including preparation of
any other documents which might be considered necessary by the lenders (including
all type and category of lenders) and the company in connection with financing the
project, and discuss, negotiate and finalize such documents with the lenders and the
Company and providing specific local law advice, as requested by the lenders and
their counsel, on all finance documentation and security documentation required or
produced in connection with the project, including inter alia -
i. Common Terms Agreement
ii. Rupee Term Loan Agreement
iii. Foreign Currency Loan Agreement
iv. Inter - Creditor Agreement amongst the Lenders
v. Lender's Agent Agreement
vi. Security Agency Trustee Agreement
vii. Indenture of Mortgage
viii. Deed of Hypothecation
ix. Trust and Retention Account Agreement/ Escrow Agreement

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ited
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x. Undertakings for cost overrun / shortfall, Creation of DSRA, Temporary

infusion of funds for delay in receipt of Grant from NHAI
xi. Share pledge Agreement
xii. Undertakings for non-disposal of shareholdings
xiii. Declarations and Undertakings as per sanctions
xiv. Consents and Agreements
xv. Trust Deed
xvi. Power of Attorneys
xvii. Such other documents as the Lenders / LLC may feel necessary
xviii. Review of LCs to be issued in favor of the project company

b. Drafting of any additional local loan documents as the lenders may require.
c. Advise on appropriate transaction mechanism to have minimum cost with efficiency.
d. Liaisoning, as required throughout the matter, with the counsel of the project
Company, counsel of the sponsors and providing such other advice and assistance and
undertaking of such other work or services as may be required by the Lenders from
time to time in the course of the matter.
e. Submit Closing Opinion confirming that the financing documents and securities
created or to be created are valid in law and enforceable.
f. Advise and assist on all legal and documentary arrangements required for the purpose
of financial closure upto and including the first drawl of the Lenders' loan by the
Project company and issue necessary certificates conforming fulfillment of conditions
precedent to first disbursement by the lenders.
g. O&M Agreement/Toll Agreement will be finalized by the Consultant as and when
required the scope of services provided above is not exhaustive and it shall be the sole
responsibility of the legal counsel to render all services required to fulfill the
obligations broadly envisaged herein.

Direct Lending Norms

1. IIFCL will accept project appraisal done by reputed appraising institutions, the Lead
Bank accepting and adopting the same.
2. IIFCL will provide direct lending to projects which come under the sectors as
defined in SIFTI (Revised).
3. The total lending by the IIFCL to any Project Company shall not exceed 20% of the
Total Project cost or 80% of the Lead bank's share whichever is lower.
4. The average maturity of the Term Loan should be equal to or exceed 10 years.

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5. Loans will be disbursed in proportion to debt disbursements from Lenders Agent

and other Banks/financial institutions of the consortium.
6. The rate of interest charged by IIFCL shall be such as to cover all funding costs
including administrative costs and guarantee fee, if any.
7. Group exposure
8. Individual project exposure
9. Project should be through competitive bidding or through memorandum of
understanding between Central/ state government or through respective regulatory
Authority.

Terms and Conditions

Illustrative list of Main Terms & Conditions
Name of the Company
1. Credit facilities:
2. Security
3. Rate of Interest:
4. Upfront charges:
5. Tenor including Repayment Programme
6. Insurance:
7. Commitment charges:
8. Penal rate of interest/Prepayment penalty
9. Any Other conditions as deemed fit by IIFCL after analyzing the project will be
added before execution of the document.

Pre-Commitment Conditions
These are the conditions that need to be satisfied before documentation. These are critical
basic requirements for a sector/project to be satisfied before the Bank will even commit
itself to the project (by way of documentation). In general such conditions include:
1. Signing of a valid principal agreement enabling the promoters to develop the project
e.g. Concession Agreement, PPA, etc.
2. All project documents would be reviewed by the LIE/LLC and all issues raised by
them would be settled to the satisfaction of lenders.
3. The insurance arrangements would be made to the satisfaction of the lenders after
incorporating the suggestions made by the LIA and with suitable bank clause.
4. Equity contribution - A letter of comfort undertaking/equity support guarantee
from the promoters towards their equity contribution would be submitted to the
lenders/Lead Bank.

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5. Management control any conditions regarding the promoters to collectively hold

-

adequate percentage of share capital during the currency of the loan like pledge of
majority shares in project company, etc. (Normally the core promoters should
continue to have management control during the loan period).
6. Furnish a guarantee/undertaking to bring in funds in a manner acceptable to the
lenders to cover cost-overrun, if any (say 10% negotiable) of the project cost. The
-

amount and nature of the cost overrun would be determined based on the certificate
given by the promoter's auditor & LIE.
7. Assignment of benefits under various project related contracts like LDs under PPA,
etc. in favor of lenders.
8. Company should have possession and title of entire land, which should be
assignable to the lenders.
9. The Shareholders' agreement for the equity of the formed SPV would be finalized
and signed to the satisfaction of lenders.
10.Conditions Precedent for validity of the State Government Guarantee/ GOI Counter
11.Guarantee should be met.
12. Modifications to/ termination of the Shareholders' Agreement to be in consultation
with and prior written approval of lenders.
13.In the event of delay in completion of the inter-connection (in respect of telecom,
power etc.) facilities, the project company would not request for re-scheduling of the
repayment of project debt.
14. Any amendments to the EPC or other contract will be carried out to LIE/Lender's
satisfaction.
15.Agree to the effect that changes, if any, in the project related agreements like PPA,
etc. would be subject to the approval of lenders.
16.Undertake that in the event of any cost savings on account of custom duties/ other
taxes & duties, a pro-rata reduction in debt as well equity in the ratio of the project
debt : equity ratio would take place.
17. Obtain necessary approvals from the GoI and RBI for the proposed foreign
investment in the equity share capital of the company, if any.
18.The company should agree to maintain various stipulated reserves e.g. DSRA,
reserves for general operating expenses, fuel, major maintenance etc.
19. Repatriation of profits/declaration of dividends would be permitted only if the
Project Company meets the dividend tests (to be defined in consultation with other
lenders), reserves are full and there is no default by the Project Company to lenders.
20. The Company to increase the authorized and paid-up capital of the project company
to the required levels.

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21. Obtain all statutory/ non-statutory clearances for the project as certified by the LIE.
22. Agree that the LIE will review all contracts to be awarded to the satisfaction of
lenders.
23. Any other condition deemed fit, depending upon case to case basis.

Pre-Disbursement Conditions
1. Modify the Memorandum & Articles of Association of the project company to
enhance the authorized share capital and borrowing powers as per the envisaged
means of financing.
2. The Sponsors to the project to bring specified proportion of their equity contribution
up front (say 25% - negotiable) and the balance in proportion to the debt draw down
as per the agreed upon debt: equity ratio.
3. The project company would open and maintain a Trust & Retention Account (TRA)
and shall deposit all the cash inflows of the company in the said account and the
proceeds should be utilized in a manner and priority to be decided by the Lenders.
There would be a specific provision in the TRA that any monies coming from
Liquidated Damages payment made to the Project Company from the EPC
Contractor/ Fuel Supplier/ any other contractor would be first deposited in this
account on which Lenders will have the first charge.
4. Take possession of entire envisaged land for the plant satisfactory to lenders, with a
provision to mortgage lease hold rights in favor of lenders and obtain all the
necessary approvals for the use of land for the purpose of the proposed project.
5. Agree for a review of the cost of project by lenders with inputs from the Lenders'
Engineer prior to financial closure, and to tie up additional means of financing for
any increase in the estimated cost of project.
6. Agree and undertake to furnish to lenders such information and data as may be
required by lenders to ensure that the physical progress as well as expenditure
incurred on the project are as per the schedule.
7. Agree that lenders have the right to review the cost of the project at any time during
the implementation of the project as also before the final disbursement of the loan
amount. Pending completion of the review, the project company to obtain prior
approval of lenders for utilizing the amount of the loans equivalent to the
contingency provision in the cost of project.
8. Agree that lenders be entitled to appoint up to two nominees (varies from case-to-
case) on the Board of the project company during the currency of financial
assistance.

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9. Agree that the preliminary and pre-operative expenses would be allowed as a part
of the project cost only to the extent they are found to be reasonable, as examined by
Lenders' Engineer, and to the extent that they are certified by auditors of repute that
they have been actually incurred and relate to the proposed project only.
10.Obtain all the remaining statutory/ non-statutory clearances for the project to be
obtained before and after construction as certified by the LIE.
11.The Company to obtain clarification from the respective Pollution Control Board
regarding requirement of continuous monitoring and make suitable arrangements
for depending on the clarification. Ensure that equipment proposed to be installed is
adequate and appropriate to the pollution control requirements.

Other Conditions
The project company would: -
1. Finalize / strengthen its organization and management set up to ensure good
corporate governance.
2. Make satisfactory arrangements with its bankers for meeting its working capital
requirements and would furnish a letter from its bankers in this regard.
3. Agree that lenders may, at their discretion, withhold disbursement of the amount of
loan equivalent to the provision against margin money for working capital in the
cost of the project till such time as the project is completed and the buildup of
working capital commences.
4. Maintain conditions stipulated for financial assistance by other FIs/ Banks/Foreign
Lenders.
5. Broad base its Board of Directors by induction of experienced outside professionals
to the satisfaction of lenders.
6. Ensure that the equipment for the plant is adequate and appropriate to meet the
pollution control norms.
7. Maintain retention reserves, as per lenders requirements, at all times during the
currency of the loan.
8. Satisfy the lenders of the adequacy of its organizational set-up for smooth operation
of the project.
9. Agree that any pre-payment of loans by the company, will be on such terms as may
be agreed to by lenders and no premium shall be payable if the pre-payment is
effected at the instance of lenders
10.Satisfy Lenders that the physical progress as well as expenditure incurred on the
project is as per the original schedule.

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11. Agree and undertake to furnish to Lenders such information and data as may be
required by Lenders.
12. Agree not to reduce its paid up share capital during the currency of rupee/foreign
currency term loan and/or guarantees (without the approval of Lenders).

Consortium Arrangement With Banks / FIs / Other Lenders

In Direct Lending as well as Take Out Finance, IIFCL may also enter into Consortium
arrangements with Banks / FIs/ other lenders. The terms and conditions as well as
modalities like sharing pattern of funding, appraisal, monitoring and pricing, etc. will
be decided mutually.

Environmental and Social Safeguards Assessment

In order to set up an infrastructure project, the project company should carry out a detailed
Environmental and Social Safeguards Assessment. IIFCL, while appraising the project
should obtain the following documents from the borrower:
i. Environment Impact Assessment (EIA) Report
ii. Environmental Management Plan (EMP)
iii. Other relevant environmental permits
iv. Resettlement Action Plan (RFP), Social Impact Assessment Report
v. Tribal Development Plan, if applicable.

Procurement Assessment:
The following documents may be obtained from the borrower for evaluating procurement
process:
i. Request for Proposal (RFP)
ii. Request for Quotation (RFQ)
iii. Any subsequent changes / amendments

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IIPCL

Chapter a- 8
Takeout
Finance
Scheme
(Revised
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Cosrap.nLy Liam:tad
IIFC L

Takeout Finance Scheme (Revised)

Preamble

In the Union Budget speech for the year 2009-10, the Hon'ble Union Finance Minister
stated "To stimulate public investment in infrastructure, we had set up the India
Infrastructure Finance Company Limited (IIFCL) as a special purpose vehicle for providing
long term financial assistance to infrastructure projects. We will ensure that IIFCL is given
greater flexibility to aggressively fulfill its mandate. Takeout financing is an accepted
international practice of releasing long-term funds for financing infrastructure projects. It
can be used to effectively address Asset-Liability mismatch of commercial banks arising
out of financing infrastructure projects and also to free up capital for financing new
projects. IIFCL in consultation with the stakeholders, evolved a takeout financing scheme,
which could facilitate incremental lending to the infrastructure sector". As a follow-on
action, IIFCL undertook a consultative process with key stakeholders and has modified the
'Takeout Finance Scheme', which is detailed below.

1. Objectives of the Takeout Finance Scheme (Revised)

• To boost the availability of longer tenor debt finance for infrastructure projects.
• To address Single Party Exposure/Group Exposure and Sectoral Exposure issues
and asset-liability mismatch of Lenders, who are providing debt financing to
infrastructure projects.
• To free-up the capital of the Banks/Lenders from the long term funding and to
invest the same for short term funding.
• To expand sources of finance for infrastructure projects by facilitating participation
of new entities i.e. medium / small sized banks, insurance companies and pension
funds.

2. Definitions
In this Scheme unless the context otherwise requires:

• Borrower Company means the legal entity which is implementing the infrastructure
project to which assistance is to be given by the IIFCL under the Takeout Finance
Scheme (Revised).

• Common Loan Agreement means the Agreement signed between Lenders and the
Borrower.

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Infrautrncture
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11F CL

• Executive Committee (EC) means a committee comprising of the following officials

of IIFCL:
Chairman and Managing Director Chairman of the Committee
-

Chief Executive Officer/Executive Director- Member of the Committee

Chief General Managers at the Head Office Members of the Committee
-

• Lender(s) means any of the scheduled commercial banks, or any other participating
entity (ies) including insurance companies who have been investing in infrastructure
sector, who have extended loans under the Common Loan Agreement to the
Borrower. For avoidance of doubt, promoter(s) of the Borrower or the affiliates of
the promoter(s) shall not constitute Lenders consequent to any debt financing
extended by such promoter(s) and / or any of their affiliates to the Borrower.

• Project Term means the duration of the project contract or concession agreement for
an infrastructure project.

• Scheduled Date of Occurrence of Takeout means the date on which takeout is

scheduled to occur as per the terms of the Takeout Agreement.

• Takeout Agreement / Agreement means the agreement entered into by IIFCL,

identified Lender(s) and Borrower, pursuant to the provisions of the Takeout
Finance Scheme (Revised).

• Takeout Amount means the aggregate amount of the residual loan agreed to be
taken out by IIFCL on the Scheduled Date of Occurrence of Takeout, pursuant to the
Takeout Agreement. Sanctioned amount may vary as takeout amount may reduce
on the Scheduled Date of Occurrence of Takeout.

• Total Project Cost (TPC) means the cost incurred towards the development of the
project, as detailed in the Common Loan Agreement. However any amount of debt
raised to fund any cost overrun in the project shall be taken into consideration if the
same has been agreed to by the Lenders of the consortium.

3. Eligibility

The Scheme will be extended to Lenders as defined in this Takeout Finance Scheme
(Revised).
(a) The infrastructure project should be from sector(s) as defined in clause 5.2 (c) of SIFTI
(Revised), which currently reads as under:
• The project should be from one of the following sectors:
Road and bridges, railways, seaports, airports, inland waterways and other
-

transportation projects;

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Indlraatructure
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ComiasarLy Lirfaitad
IIFCL

Power;
Urban transport, water supply, sewage, solid waste management and other
physical infrastructure in urban areas;
Gas pipelines;
- Infrastructure projects in Special Economic Zones; and
- International convention centers and other tourism infrastructure projects."
- Cold storage chains;
- Warehouses;
- Fertilizer Manufacturing Industry.
(b) Infrastructure projects which have achieved financial closure and have a residual debt
tenor of at least 6 years or Infrastructure projects which are yet to achieve financial closure
as on the Effective Date.

Infrastructure Sectors as defined by SIFTI (Revised) shall be eligible for takeout financing
by IIFCL.

IIFCL shall assign overriding priority to Private Public Partnership projects. For Non-PPP
projects, total lending by IIFCL under the Scheme should not exceed 20% of the total
lending by IIFCL in any financial year.

For consideration under Take Out Finance, a proposal should have a post COD Credit
rating from RBI approved Credit Rating Agency.

In respect of road sector (Annuity), the proposals will be considered after COD is
achieved. In other sectors, one year after COD is achieved.

4. Extent of takeout financing

The extent of takeout finance shall be:
1. 100% of residual loan of individual lender(s)
2. Maximum 75% of residual loan in case of Lead Bank
3. 50% of the Residual Loan on the Scheduled Date of Occurrence of Takeout
4. 30% of the Total Project Cost

whichever is less, subject to:

- Single Party Exposure Limit
- Group Exposure Limit
as applicable to RBI's NBFC-IFC norms.

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The total exposure of IIFCL in the project including Direct Lending if any shall be limited
to 30% of TPC.

5. Request for Takeout, Takeout Agreement and its timing

IIFCL may receive a request from either , the borrower company or the lender(s). In the
event of the Borrower/Company requesting takeout finance, it should be followed with an
undertaking by the said Borrower/Company, confirming that the consent of the lender
shall be furnished before the tripartite agreement is executed.

A No Objection Certificate (NOC) from the lender(s), the Concessioning Authority (if
applicable) and the Consortium, is to be provided to IIFCL for extending the takeout
finance under the Scheme. This NOC is to be arranged by the Borrower
Company/Lender(s) before Scheduled Date of Occurrence of Takeout.

IIFCL, the identified Lender(s) and the Borrower shall enter into an Agreement i.e. Takeout
Agreement pursuant to the Takeout Finance Scheme (Revised).

6. Tenor of Takeout financing

The tenor of the Takeout Amount with IIFCL shall be the same as that of the lender(s) in
the consortium whose loan will be taken out, as provided to IIFCL at the time of request for
takeout. The amortization schedule of taken out loan by IIFCL will be structured to ensure
that the last loan repayment is scheduled within the Project Term.

After entering into the Takeout Agreement but before the loans are taken out, if Lenders
propose any change in the loan terms i.e. restructuring of loan or related matters, IIFCL
will be invited to attend the relevant meeting of Lenders to be held pursuant to the Inter-
Creditor Agreement and IIFCL's views will be taken into consideration by Lenders in
keeping with the spirit of the Takeout Agreement. If IIFCL is not agreeable to restructuring
of loans, it will have an option to opt out of the Takeout Agreement.

IIFCL will have the option to restructure loans taken out to suit the project ground realities
and the cash flows. Such restructuring may include increasing the extent of debt funding in
the project if allowed by the project cash flows. However, such an option will be exercised
in accordance with the provisions of the Inter Creditor Agreement.

7. Rate of Interest
The rate of interest for the loan taken-out by IIFCL on the Schedule Date of Occurrence of
Takeout is indicated under Chapter-5 Risk & Pricing

8. Takeout Fees, Legal Costs and Other Charges

IIFCL may charge the Borrower Company, a one-time takeout fee of 0.30% of the total
takeout amount which may be passed on to the Banks, whose loans would be taken out by

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IIFCL. The takeout fee of 0.30%is to be paid by the Borrower Company before entering into
the takeout agreement.

The legal cost including stamp duty shall be borne by the Borrower.

The projects where takeout finance is being extended shall be subject to Annual Review by
IIFCL. The Borrower shall pay to IIFCL Annual Review Charges @ Rs. 125.00 per lac subject
to maximum of Rs. 56000.00 (excluding service tax).

9. Appraisal, Monitoring and Recovery

IIFCL may consider the proposals having DSCR of at least 1.00.

The Takeout Agreement will be signed by IIFCL, subject to it being satisfied with the
appraisal adopted by the Lead Bank and subject to its own due diligence process.

IIFCL will monitor the periodic evaluation of compliance of the project with agreed
milestones and performance levels.

IIFCL with the Lead Bank / consortium Lender shall be responsible for regular monitoring
and periodic evaluation of compliance of the project with agreed milestones and
performance levels.

The Lead Bank / Lender shall send periodic progress reports in such form and at such
times, as maybe prescribed by IIFCL.

10. Other features of the Takeout Finance Scheme (Revised)

After entering into Takeout Agreement, in case any fraud or forgery committed by the
Borrower comes to the notice of IIFCL, the Takeout Agreement shall stand terminated.

On the Scheduled Date of Occurrence of Takeout, the takeout will be executed in respect of
only those loans, which are classified as standard assets in the books of the Lenders who
have signed the Takeout Agreement.

Subject to the provisions of the Takeout Finance Scheme (Revised), at the time of
occurrence of takeout, it will be the obligation of the Borrower Company/ Lender(s) and
IIFCL, who have entered into Takeout Agreement, to effect the takeout without any
protest, contest or demur.

After the loans are taken out, IIFCL will become a party to the Inter- Creditor Agreement.

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Iraclia
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Cartspanv Larnit.ed
11 F C

After getting the NOC from the concerned party, IIFCL's security interest in the project's
assets and cash flows shall be created to rank pari-passu with senior debt extended by the
Lender(s) under the consortium.

At any time before or after occurrence of takeout, the Borrower will have the option to
prepay the loans pursuant to the relevant provisions of the Common Loan Agreement and
Takeout Agreement.

Executive Committee and Its Powers:

The Executive Committee (E.C.) will have the power to sanction loan upto Rs.200 crore
under Takeout Finance Scheme (Revised) to a single project without any deviation from the
Scheme and then put for noting to the Board in the next ensuing Board. However, the
projects having any deviation from the Scheme and otherwise found in order may be put-
up to the Board for sanctioning on recommendation by E.C. Further E.C. will ensure that
there shall be no splitting of sanction to any projects.

Composition of executive committee shall be as under:

1. CMD
2. ED
3. All CGMs of Head Office, IIFCL

The Quorum of the Executive Committee meeting shall be CMD of IIFCL and 3 other
members.

The E.0 will meet once in a fortnight and will dispose off all the proposals received by
IIFCL.

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Chapter ji.f 9
Refinance

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India
lz.frastructuw.
Firursee
Con...parry I.:mites:I
IIFCL

Meaning of Refinance
Refinance means paying off an existing loan with the proceeds from a new loan, usually of
the same size, and using the same property as collateral. In order to decide whether this is
worthwhile, the savings in interest is weighed against the fees associated with refinancing.
Other objectives of refinance include reducing the term of a longer mortgage, or switching
between a fixed-rate and an adjustable-rate mortgage. If there is prepayment fees attached
to the existing mortgage, refinancing becomes less favorable because of the increased cost
to the borrower at the time of the refinancing.

IIFCL's Refinance Scheme

The primary objective of IIFCL's refinance scheme is to facilitate the flow of funds in an
increasing manner for the development of infrastructure in the country. Under the scheme
IIFCL will provide refinance for term loans sanctioned by Banks and Public Financial
Institutions for only new commercially viable projects in road, port, Railways Sectors,
Competitively bid power projects, and UMPPs.

Eligibility
The main characteristics of the scheme are:-
(i) Refinance would be provided to Banks for new commercially viable infrastructure
projects in road and port, Railways Sectors, Competitively bid power projects, and UMPPs.
(ii) Refinance would be made available to new projects only for which bids are submitted
on or after 31.01.2009.
(iii) The definition of eligible projects will be as per clause 5.2 (A) of SIFTI (Revised).
(iv) Refinance Scheme will be extended to Public Financial Institutions notified under
Section 4 (A) of the Companies Act, 1956 while adopting the prudential norms prescribed
by RBI on bank loans to NBFCs as amended from time to time.

Extent of Refinance
IIFCL shall provide refinance upto 80% of the loans provided by the Banks to infrastructure
projects in road and port, Railways Sectors, Competitively bid power projects, and UMPPs.

Rate of Interest
The Banks will not charge more than 2.50% over and above the rate charged by IIFCL. The
IIFCL rate of refinance at present would be 7.85% p.a.

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IIFC

Tenor of Refinance
Tenor of refinance shall be 10 years with a reset after 5 years. However, if the Government
of India considers necessary may allow an extension with reset for 5 more years after 10
years. The Banks will have to lend for tenors exceeding 15 years on 'best endeavour' basis.

Repayment of Refinance
The repayment of refinance would be linked with the repayment schedule of the loan fixed
by the consortium in a manner so as to ensure total repayment of refinance amount within
a period of 10 years.

IIFCL direct sanction to the project where refinance is extended

IIFCL to sanction 10 percent of the project cost as against 20% where refinancing facilities
are available for such projects.

Other Terms of Refinance

a) No Upfront fee to be levied.
b) Prepayment of refinance installments is permitted only in cases where the borrowing
units have prepaid the corresponding loan installments.
c) Time limit for availment of refinance is within three months from the date of each
disbursement.
d) Failure to service interest or debt would attract the provisions of the General Agreement,
which involves levy of additional interest.
e) IIFCL may periodically depute its officials/agents for post disbursement scrutiny of
refinanced accounts in the books of the Bank and where necessary, also of the borrowing
units. The assisted units are, therefore, required to give an undertaking to the Bank
authorizing to furnish any information relating to the units to IIFCL and allowing IIFCL to
inspect their project site and accounts.

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Infra rncture
Finanea
IIFCL

Chapter 10
-

Credit
Enhancement

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Firusar•ce
Oonnr■ Pomry LIrraitad
IIFC L

1. Title of Scheme
The scheme would be known as "Outline - Credit Enhancement Scheme" for viable
infrastructure projects to enable IIFCL to carry out pilot transactions to the extent of Z 4,000
crores (i.e. the contingent liability of IIFCL shall not increase by more than Z 2,000 crore on
account of such pilot transactions) and would come into force from the date of this
scheme's approval letter by the Department of Financial Services, Government of India.
2. Eligibility
Credit enhancement Scheme would be extended to commercially viable infrastructure
projects which satisfy the following:
• The infrastructure project should be from the infrastructure sectors as defined under
SIFTI (Revised).
• The minimum stand-alone credit rating of the infrastructure project to be credit
enhanced should be at least BBB (before Credit Enhancement by IIFCL).
• The infrastructure project should have achieved COD as on the date of extension of
Guarantee/Credit Enhancement by IIFCL for the Project Bonds to be issued by the
infrastructure project.
• The funds raised by the infrastructure project through project bonds credit enhanced
by IIFCL shall be used exclusively to repay the existing debt to existing lenders of
the infrastructure project.

3. Extent of Credit Enhancement

IIFCL will undertake credit enhancement upto 40% of the total project cost. IIFCL's Board
may on the merits of each case decide on the extent of Guarantee/Credit enhancement to
be provided by IIFCL.
However, the extent of guarantee / credit enhancement extended by IIFCL to any
infrastructure project for its project bonds shall be limited to the extent which enhances the
credit rating of the project bonds issued by the Issuer (infrastructure developer) up to
maximum of AA subject to a maximum of 50% of the total amount of Project Bonds issued.
IIFCL will provide unconditional and irrevocable credit guarantee to enhance the credit
rating of the bonds issued by the Issuer up to maximum of AA. The structure of the
guarantee by IIFCL and its coverage (First Loss or otherwise, with reset clause or otherwise
etc.) may be decided by the board based on requirement & merits of each case.
4. Agreement between IIFCL and Project Bond Issuer
IIFCL and the Issuer of project bonds (infrastructure project developer) shall enter into
Agreement(s) before issuance of the project bonds defining the extent, terms and other
conditions relating to the guarantee/credit enhancement being extended by IIFCL.

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5. Security
Investors to the project bond will have pari-passu charge, on the assets of the project bond
Issuer, with other lenders of the consortium of debt, for the bond amount. IIFCL will have a
charge, which will be subordinated to the project bond Investors & other senior debt
lenders but IIFCL will step into the shoes of the Project Bond Investors and will have pari-
passu charge to the extent of invoked guarantee after the bond investors are paid in full.

6. Risk Sharing/ Back stop guarantee

IIFCL shall enter into risk sharing agreements with Asian Development Bank/ World Bank
in respect of any Guarantee / credit enhancement extended/to be extended by IIFCL.
Risk sharing arrangements could be in the form of a guarantee, reinsurance, back stop
guarantee, unfunded risk participation or any other agreements which is intended to
reduce/cover/share the risk of IIFCL. Such arrangement to be entered into by IIFCL on
terms based on merits & requirements of each case and shall be subject to the approval of
Board.

IIFCL may also enter into such arrangement for bunch of transactions (defined based on
number of transactions or amount of transactions etc.) with any institution stated in the
paragraph above.

7. Tenure
The minimum average maturity period of the project bonds to be 10 years with or without
a lock-in of 5 years.

8. Guarantee / Credit Enhancement Fee

The Guarantee / Credit enhancement fee to be charged by IIFCL for extending
guarantee/credit enhancement to the project bonds shall be around 50% of the interest
savings for the project bond issuer. The interest saving for the project bond issuer would be
largely the difference in the rate of interest / coupon on the project bonds issued/ to be
issued and the rate of interest on existing debt which is being replaced by the amount
raised / to be raised by the project bond.
The terms of payment of Guarantee / Credit enhancement fee such as frequency
(monthly/ quarterly/annually) or time of payment, mode of payment etc. may be decided
on the merits and requirements of each case.

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The total guarantee fee may be charged by IIFCL in any form and break up such as upfront
fee, processing fee, recurring fee, commitment fee etc. and may be worked out by IIFCL at
the time of transaction.

IIFCL may share the Guarantee fee with the institutions providing reinsurance/backstop
guarantee in the manner & proportion depending on the merits & requirements of the
transaction.

9. Appraisal & Monitoring

• IIFCL shall conduct an independent appraisal of the credit risks of the project and
the terms of the bond issue before providing Credit Enhancement solely or jointly
with an institution providing back stop guarantee '/ reinsurance etc. as mentioned
above, if applicable.
• For monitoring, IIFCL may request the investors to the Project Bonds to authorise
IIFCL to attend the consortium meeting on their behalf and for sharing the minutes
of consortium meeting with IIFCL. The Developer to share all information on the
projects and its financials with IIFCL.
• IIFCL may take the services of a Sector/finance Specialist to help IIFCL in
appraising the projects for pilot transactions.

10. Other features

• The promoters of the project should not be on the defaulters list of Reserve Bank of
India (RBI) or Credit Information Bureau (India) Limited (CIBIL).
• In case IIFCL notices any fraud or forgery committed by the Borrower, pertaining to
this particular transaction, after the signing of the Agreement, the Agreement shall
automatically stand terminated.

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Chapter alMW 11
Restructuring
of Accounts

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I I F C L Compar

Restructuring of Accounts
The basic objective of restructuring is to put in place a transparent mechanism for
restructuring of debts of potentially viable entities facing temporary problems due to
factors beyond their control. In particular, the policy framework will aim at preserving
viable units that are affected by certain internal and external factors and minimize the
losses to the creditors and other stakeholders by way of providing timely support through
an orderly and coordinated restructuring programme.

It is to be ensured that while taking up restructuring in any account, the ultimate

viability/repaying capacity of the borrowers should be kept in view instead of considering
temporary/ short term restructuring of the account. It assumes greater importance in the
context that second time restructuring of any account will downgrade the account as
regulatory concessions are not available in case of second/repeated restructuring.

Further, restructured loan accounts which have been classified as NPA should be upgraded
to the standard category only after observing satisfactory performance of one year from the
date when first repayment of interest or installment of principal falls due under the terms
of restructuring package.

No account shall be taken up for restructuring unless the financial viability is established
and there is a reasonable certainty of repayment from the borrower as per the terms of
restructuring package.

Borrowers indulging in frauds and malfeasance shall not be eligible for restructuring.
Willful defaulters shall also not generally be considered for restructuring. Where strong
justifiable reasons exist for considering restructuring the accounts of a willful defaulter, it
should be ensured that the borrower has taken satisfactory steps to rectify the willful
default.

Restructuring cannot be done with retrospective effect.

If restructuring is taken up, the same should be implemented within 90 days from date of
receipt of application.
The restructuring should not be a repeated restructuring.
The restructuring package should have right of recompense clause.
The Bank / Lender(s) should have the right to pre-pone repayment installments if
projections are over achieved.

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3. Asset Classification and Provisioning of Loan accounts

It is proposed that IIFCL will follow asset classification and provisioning norms for all loan
accounts as prescribed by RBI for NBFC-IFC from time to time:

Eligibility criteria as per RBI prudential guidelines:-

2. The accounts classified under standard, sub-standard and doubtful categories may
be restructured.
3. The process of restructuring can be initiated in deserving cases subject to borrower
agreeing to the terms and conditions.
4. No account will be taken up for restructuring unless the financial viability is
established and there is a reasonable certainty of repayment from the borrower.
Any restructuring done without looking into cash flows of the borrowers and
assessing the viability of the projects would be treated as an attempt at ever
greening a weak credit facility.

Accounts can be restructured under the following stages:

a) Before commencement of commercial production;
b) After commencement of commercial production but before the asset has been
classified as sub-standard;
c) After commencement of commercial production and the asset has been classified as
sub-standard:

Provided that in each of the above three stages, the restructuring and/or rescheduling
and/or renegotiation of principal and/or of interest may take place, with or without
sacrifice, as part of the restructuring or rescheduling or renegotiating package evolved.

With regard to treatment of restructured standard loan / sub-standard loan an adjustment

of interest IIFCL shall follow RBI Guidelines relating to NBFC-IFC.

Project Loan' is any term loan which has been extended for the purpose of setting up of an
economic venture. Banks/FIs must fix a Date of Commencement of Commercial
Operations (DCCO) for all project loans at the time of sanction of the loan/ financial
closure.

(i) A loan for an infrastructure project will be classified as NPA during any time before
commencement of commercial operations as per record of recovery (180 days overdue),
unless it is restructured and becomes eligible for classification as 'standard asset'.

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IIFOL

(ii) As asset which has been classified as NPA for a period not exceeding 18 months
would be substandard assets.

(iii) A loan for an infrastructure project will be classified as NPA if it fails to commence
commercial operations within two years from the original DCCO, even if it is regular as per
record of recovery, unless it is restructured and becomes eligible for classification as
'standard asset'.

(iv) If a project loan classified as 'standard asset' is restructured any time during the period
up to two years from the original date of commencement of commercial operations
(DCCO), in accordance with the provisions of prudential guidelines on restructuring of
advances as prescribed by RBI, it can be retained as a standard asset if the fresh DCCO is
fixed within the following limits and further provided the account continues to be serviced
as per the restructured terms:

(a) Infrastructure Projects involving court cases Up to another 4 years (beyond the
existing extended period of 2 years i.e total extension of 6 years), in case the reason for
extension of date of commencement of production is arbitration proceedings or a court
case.
(b) Infrastructure Projects delayed for other reasons beyond the control of promoters Up
to another 1 year (beyond the existing extended period of 2 years i.e. total extension of 3
years), in other than court cases.

(v) The above is subject to adherence to the provisions regarding restructuring of accounts
as per prudential guidelines on restructuring of advances as prescribed by RBI, which
would require that the application for restructuring should be received before the expiry of
period of two years from the original DCCO and when the account is still standard as per
record of recovery. The other conditions applicable would be:
a. In cases where there is moratorium for payment of interest, banks should not book
income on accrual basis beyond two years from the original DCCO, considering the high
risk involved in such restructured accounts.

b. IIFCL shall maintain provisions on such accounts as long as these are classified as
standard assets as under:

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Until two years from the original Date for Commencing

0.25%
Commercial Operations (DCCO)
During the third and the fourth years after the original
1
1.00%
DCCO.

(vi) For the purpose of these guidelines, mere extension of DCCO will also be treated as
restructuring even if all other terms and conditions remain the same.

Corporate Debt Restructuring Mechanism (CDR)

CDR is aimed at preserving viable corporate that are affected by certain internal and
external factors and minimize the losses to the creditors through an orderly and
coordinated restructuring programme. IIFCL follows the CDR mechanism as led down in
RBI guidelines on Prudential Guidelines on Restructuring of Advances by Banks.

Reference to CDR system could be triggered by

1. Any or more of the creditor who have minimum 20% share in term finance or
2. By the concerned corporate if supported by a bank or financial institutions have
stake as in 1 above.

CDR system will have a three tier structure -

- CDR Standing Committee

- CDR Empowered Group
- CDR Cell

Eligibility Criteria
CDR system will be applicable only to accounts classified as standard and sub-standard.
There may be a situation where a small portion f debt by a bank might be classified as
doubtful. In that situation, if the account has been classified as standard / substandard in
the books of at least 90% of creditors (by value), the same would be treated as standard /
substandard, only for the purpose of judging the account as eligible for CDR, in the books
of the remaining 10% of creditors. There would be no requirement of the account /
company being sick, NPA or being in default for a specified period before reference to the
CDR system. However, potentially viable cases of NPAs will get priority. This approach
would provide the necessary flexibility and facilitate timely intervention for debt
restructuring. Prescribing any milestone(s) may not be necessary, since the debt
restructuring exercise is being triggered by banks and financial institutions or with their
consent.

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IIFCL Company Limited

There have been instances where the projects have been found to be viable by the creditors
but the accounts could not be taken up for restructuring under the CDR system as they fell
under 'doubtful' category. Hence, a second category of CDR is introduced for cases where
the accounts have been classified as 'doubtful' in the books of creditors, and if a minimum
of 75% of creditors (by value) and 60% creditors (by number) satisfy themselves of the
viability of the account and consent for such restructuring, subject to the following
conditions :-

(i) It will not be binding on the creditors to take up additional financing worked out
under the debt restructuring package and the decision to lend or not to lend will
depend on each creditor bank / FI separately. In other works, under the proposed
second category of the CDR mechanism, the existing loans will only be restructured
and it would be up to the promoter to firm up additional financing arrangement
with new or existing creditors individually.
(ii)All other norms under the CDR mechanism such as the standstill clause, asset
classification status during the pendency of restructuring under CDR, etc., will
continue to be applicable to this category also.

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Fizzarbc•
Conertparay Limited

Chapter 12
PMDO

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r.clar
Trafreutruccur•
Firta.ce
Comporay Lied
ITFCL

Background
Pooled Municipal debt Obligations Facility (PMDO) is a cooperative effort of banks and
financial institutions for providing term lending to urban local bodies to address the gap in
urban infrastructure investments.

The PMDO facility comprises of Sponsors and Lenders and managed by IL&FS Financial
Services as Asset Manager;

The Sponsors are: IDBI, IIFCL, Canara Bank & IL&FS Financial Services Limited (IFIN)

The Lenders are:-Allahabad Bank, Bank of India, Dena Bank, Central Bank of India,
Corporation Bank, Indian Bank, Life Insurance Corporation of India, Oriental Bank of
Commerce, Syndicate Bank, Union Bank of India, Vijaya Bank, and Indian Overseas Bank.
Memorandum of Agreement (MoA) was signed (on October 13th, 2006) between the
Sponsors/Lenders, Asset managers and Security Trustee with an initial corpus of 22750
crore which has been increased to 24755.30 crore.

IIFCL had committed a contribution of n50 crore towards the corpus of 22750 crore of
Pooled Municipal Debt Obligation (PMDO) Facility on October 2006 which was
subsequently increased to 2272.50 crore by IIFCL Board on 21st September 2010.

The terms of sanction of the project would be as per the Terms of the Memorandum of
Agreement signed on 13th October 2006 and the Amended Memorandum of Agreement
signed on 21st September 2010.

Brief Description of PMDO Operations

1. Credit Committee: The Credit Committee comprises of 11 members one each from
IDBI, IIFCL, LIC, Canara Bank, Indian Bank, Bank of India, & Syndicate Bank and
two members from IFIN. Further two members from amongst other lenders are
included in the Credit Committee on a rotation basis for duration up to six months.
Role: Credit Assessment and approval
2. Sub Committee: Constituted to facilitate vetting the proposals prior to being placed
before the credit committee
3. Asset Manager: The PMDO facility is managed, operated and monitored by the
Asset Manager, including identifying and appraising proposed Sub-projects and
monitoring of covenant along with Security Trustee.
The lenders of the PMDO facility have authorized the Asset manager to:

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11 F C L

i. Identify projects
ii. due-diligence, appraisal and recommending to credit committee
iii. negotiating / finalizing and executing documents
iv. monitoring fund disbursement
v. ensuring assistance to the borrower in the bid process
vi. assist the trustee in disbursement and project monitoring

4. Powers of the Committee:

i. To approve the recommendations of the Asset Manager with regard to
the Debt Service Reserve to be maintained by the Borrower in the Debt
Service Reserve Account.
ii. To decide the additional sectors and additional categories of borrowers
for providing funding under PMDO facility.
iii. To decide with respect to administration of the PMDO Facility, including
reset of Interest rate and the terms of facility including extension of the
tenor of the PMDO facility by additional 3 yrs.
iv. To increase the commitment to each sub-project upto 20% of its corpus.
v. To provide its approval for the proposals submitted by the asset manager
on various matters including interest rate and security structure for the
sub-projects.
vi. To decide on nomination of nominee directors on board of borrower/ s
from time to time to represent the Lenders.

5. Drawdown: IIFCL shall make disbursement to individual projects up to the

respective commitments on receipt of Draw-Down Notice from the Asset manager.

6. Monitoring: IIFCL shall monitor the projects through site visits in addition to
progress report received from the Asset Manager and the Credit Committee
meetings.

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Section
 Finwcs

Chapter 13
Pre- Sanction
Credit Process

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Pre Sanction Credit Process

Assistance for projects should be considered on the basis of viability assessment. The
appraisal process includes a site visit of the project, discussions with the promoters,
analysis of the past performance of borrower/ other concerns in the group and evaluation
of the technical, commercial financial and economic viability. A site visit is necessary to
assess the suitability of the project location, availability of essential utilities/ logistics like
power and water supply, labour, transportation, infrastructure, etc., near the plant besides
assessing the environment impact.

The deficiencies, if any, relating to the conduct of borrower's accounts as brought out on
different report viz, internal audit, site visit, Nominee Directors, statutory audit etc. and
ratification thereof should also be covered. Further, position of receipt of quarterly progress
reports/ Balance sheets/ other returns and analysis thereof and major observations made
at Officers Level Meeting(s)/ Senior Executive Meeting(s) should also be included in such
appraisal notes.

The current practice of sanctioning viable infrastructure projects appraised by the reputed
appraising institutions / banks / international financial institutions, was approved. The
disbursement of loans by IIFCL is, however, subject to the appraisal being done by reputed
appraising institutions, the Lead Bank accepting and adopting the same. IIFCL shall
disburse the loan on pro-rata basis only after getting the sanction from the Lead Bank and
entered into a loan agreement and financial closure.

1. Lending to PPP Projects

A project awarded to a Private Sector Company for development, financing,
construction, maintenance and operation through Public Private Partnership (as defined
in the Scheme for Viability Gap Funding) shall be accorded priority for lending under
this Scheme.

In case of PPP projects, the private Sector Company shall be selected through a
transparent and open competitive bidding process.

PPP projects based on standardized/model documents duly approved by the respective

government would be preferred. Stand - alone documents may be subjected to detailed
scrutiny by the IIFCL.

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Prior to inviting offers through a open competitive bid, the concerned government or
statutory entity may seek 'in principle' approval of the IIFCL for financial assistance
under the Scheme. Any indication given by IIFCL at the pre-bid stage shall not be
treated as a final commitment. Actual lending by IIFCL shall be governed by the
appraisal by the Lead Bank carried out before financial closure of the project.

In addition, IIFCL may also offer in-principle sanction to the prequalified bidders for
financial assistance which shall not be treated as a final commitment.

2. Statutory clearance Approvals and permits

• Approval from CEA for cost of the project
• Techno-economic clearance from CEA.
• Techno-economic clearance from State Electricity Board
• Notification to be issued under Sec. 29(3) of Indian electricity (Special) Act, 1948.
• Water availability from the Central Water Commission / State Govt.
• Pollution clearance (Water and Air) from State and Central Pollution Control
Boards.
• Environment and Forest Clearance from ministry of E & F / State Government.
• Civil Aviation clearance for the height of chimney from the National Airport
Authority.
• Rehabilitation and resettlement of displaced families from Land & Acquisition
Deptt. Ministry of Environment and Forests / State Government.

3. Non- Statutory Clearances

• Allotment of project
• Power Purchase Agreement / MOU
• Land availability and Allotment of Land from State Govt.
• Concession Agreement
• Fuel linkage from Ministry of Petroleum and Natural Gas / Ministry of Coal (MoC)
• Sales Agreement for fuel from suppliers i.e. petroleum Companies / Coal field
• Fuel Transportation Agreement.

4. Other Clearances
• RBI Clearance for foreign investment
• ECB Clearance
• Foreign exchange permission from RBI for ECB

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11 F C

• Permission for license for capital goods import from Ministry of Petroleum / MOC.
• Approval for handling and storage facilities of fuel from the Chief Controller of
Explosive.
• Approval for Power Evacuation, Borrow Earth Permit, Permission for installation of
Crusher, Asphalt Plant, License for use of explosives, License for setting up Batching
Plant and approval of the Railway authorities in the form of a general arrangement
drawing that would enable the Concessionaire to construct road over bridges/
under bridges at level crossings on the Project Highway etc should be in order.

Power Fuel Supply Agreement, source of Power fuel, Government policy for power project,
foreign regulatory in case of imported coal based power project should be evaluated. The
cost of coal at the time of mining, at the time of transportation and at the time of power
generation should be appraised.

5. Viability of project in terms of Commercial, Economic and technical:

The feasibility of the project has to be studied from different angles like
a) Management
b) Commercial
c) Technical
d) Financial
e) Economic

a) Management

In predicting performance of a project, assessment of management quality is a critical

factor. One of the major reasons for project failures/ delays/ cost overrun/ time overrun
can be attributed to inefficient management. Management inefficiency can stem from lack
of integrity and commitment to lack of necessary expertise and inability to raise resources
in time of need. Assessment of management is also difficult, as quite a few of the attributes
of efficient management need qualitative assessment.

Management efficiency reflects in the way they maintain their accounts with banks, their
ability to raise resources in time and the accounting practices that are followed and
reported. In predicting management success in managing projects, these factors have been
found to be relevant:

1. Management Experience
2. Management Qualification and Knowledge
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Firkaarlore
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11FCL. Carr.paww Limited

3. Past Track Record/ Creditworthiness

4. International Scale Operations/ Global Presence
5. Order Book Size
6. Geographic Location
7. Third Party Contracts (Outsourced)

Management Experience
Management Experience is the most critical factors that have a direct impact on the
outcome of the project. Some of the features of a project it may affect would be like
technological feasibility, timely completion of the project, foreseeing the possible
hindrances in the project implementation and their ability to make suitable arrangement
for same, their ability to address issues relating to concerns raised by lenders and other
parties to the project, management experience in the projects of similar nature, better
utilisation of resources, better financial management etc.

Management Qualification and Knowledge

The ability to understand, analyse, assess and make arrangements for contractual
obligations, logistics, designs, technology and placement of foreseeable contracts
(Operation and Management, Insurance etc.) give the project a natural advantage for
timely completion.

The strengths/ weaknesses of the promoter/ management are critical for any project
during construction and operations phase.

Past Track Record

Past track record mainly reflects on the performance of the company in past in various
projects, in relation to defaults in payments, managing contractual obligations covering
Power Purchase Agreements (PPAs), Fuel Supply Agreements (FSAs), Fuel Transport
Agreement (FTAs), ability to handle adverse situations, track record in dealing with
Banks/ FIs, ability to fund cost overruns, timely completion of project, capability to handle
similar scale/ size/ technology/ vendor arrangements, Project Management Services
(PMS), trained manpower availability.

International Scale Operations

Where the promoters developing the project have experience of carrying out the projects on
international scale would reflect on the ability of the developers to make use of latest

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technology in the project, draw on inputs from experts in various sectors/ geographies,
procure coal linkages, sources of cheaper funds etc.

Order Book Size

It reflects on the ability of the promoters to bring in equity as per the schedule and shows
the good revenue visibility, solvency & liquidity position of the promoter and the times
growth order to year on year revenues.

Geographic Location of the Project

This would have a direct impact on the ability of the management to carry out the work as
per schedule. Management experience with projects in similar or near by geographic
location would be an advantage for the developers providing faster access to economies of
scale, using the same labour, easier execution with government, faster clearances and
similarly having experience in carrying out projects in locations with difficult terrain or
areas which are politically disturbed, would again be an advantage.

Third Party Contracts (Outsourced Contracts)

This would affect the ability of the management to deal with the major contractors for the
project, specially negotiating with them at the time of entering into the contracts. Apart
from this, if the contractors in the project are the companies of the promoters itself, then
this will be a direct reflection on the engineering capabilities of the promoter group and
their experience in handling the project through EPC Contractors, O&M Contracts,
Traffic& Toll Management etc.

Management Appraisal
The background, creditworthiness, track record and managerial / financial resourcefulness
of the promoters and their past dealings with institutions/ banks should be ascertained. A
proper evaluation of management is crucial part of the overall appraisal of a project.
Applications for assistance may be received either from first generation / new promoters
for setting up as new project or from existing promoters for new project or for expansion /
diversification / modernization In case of first generation / new promoters, the size of the
project vis-à-vis resourcefulness of the promoters and other sources of funds should be
critically examined. An indicative checklist to facilitate management appraisal is given
below:

Borrower
1) Memorandum and Articles of Association (By-Law in case of Cooperatives)

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Objects, whether the proposed activity is included in the objects clause.

Authorized share capital
Borrower Power, whether the company has powers to borrow
Against suitable securities
- Directors and board of directors-
o Nominee directors, whether suitable provisions for appointment of
institutional nominee has been incorporated.
o Send a copy of the memorandum and Articles to Legal Department for
vetting.
2) Shareholder's agreement (agreement among promoters for promoting the project)
Salient features
Capital structure
Promoters' inter se contributions, representation on the Board, etc
Term of appointment of directors by each promoter
Sharing of responsibilities
Procedure for divestment of interest
3) The technical feasibility study would include the following:
a. Process technology
b. Technical know - how consultancy
c. Size of the plant
d. Plant & Machinery
e. Location
f. Lay-out
g. Raw material and other inputs
h. Utilities
i. Labour
j. Effluent Disposal / Pollution Control
k. Project Scheduling and Monitoring
1. Cost of project
m. Cost of Production

Feasibility of projections/estimates in terms of Cost, sales and profit

1) Profitability estimates, projected cash flow and balance sheet should be prepared both
for the specific project(s) and for the concern as a whole. The projections should cover
the entire duration of the loan. These financial projections should be scrutinized with
reference to cost of project; means of financing thereof and the underlying assumption
relating to schedule of implantation, capacity utilization, cost of production,

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administrative expenses, sales realization specific tax benefits etc. If the assumptions are
unrealistic, the projections should be suitably modified. Based on the projections,
various ratios such as Debt-Equity Ratio, Current Ratio, Fixed Asset Coverage Ratio,
Gross profit, Operating Profit and Net Profit Ratios and Debt Service Coverage Ratio
should be worked out and analysed to ensure whether they are satisfactory and
conform to norms. The underlying assumptions for arriving at the projected
profitability estimates should be examined carefully to avoid overstating or
understating of the position.
2) Company will participate in infrastructure financing for the purposes/activities
illustrated under SIFTI (Revised). However, Bank's participation in such type of long
term financing will be on selective basis based on the viability of the project and
considering the company's asset-liability position available with Risk Management
Deptt and other parameters as under:
(a) Exposure as per Company's Internal Prudential Norms.
(b) The minimum DSCR and average DSCR for infrastructure project should not be
less than 1.10:1 and 1.30:1 respectively computed after the Commercially
Operation date.
(c) The debt/ equity shall not exceed 4:1 in case of Non-PSU and 7:1 in case of PSU
constituents, however the debt equity ratio in respect of the road sector projects
considered for financing may not exceed 4:1.
(d) The Loan shall be sanctioned after proper risk mitigation evaluation process by
way of appraisal with regard to technical feasibility, economic viability.
(e) The credential of foreign participants in the projects should be obtained from
accredited agencies.
(t) The financial closure / funds tie up should be ensured before release of funds.
(g) The moratorium period should not generally exceed 3 years.
(h) In respect of projects that are undertaken by Public Sector Units, Term Loans may
be sanctioned only for corporate entities (i.e. public sector undertakings
registered under Companies Act or a Corporation established under the relevant
statute). Further, such term loans should not be in lieu of or to substitute
budgetary resources envisaged for the project. The term loan could supplement
the budgetary resources if such supplementing was contemplated in the project
design. While such Public Sector Units may include Special Purpose Vehicles
(SPVs) registered under the Companies Act particularly set up for financing
infrastructure projects, it should be ensured that these loans/investments are not
used for financing the budget support of the State Governments. Whether such
financing is done by way of extending loans or investing in bonds, the bank

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11FCL

should undertake due diligence on the viability and bankability of such projects
to ensure that revenue stream from the project is sufficient to take care of the
debt servicing obligations and that the repayment/servicing of debt is not out of
budgetary resources. Further, in case of financing the SPVs, IIFCL should ensure
that the funding proposals are for specific monitor able projects.
(i) IIFCL may also lend to SPVs in the private sector, registered under Companies Act,
for directly undertaking infrastructure projects which are financially viable and
not for acting as mere financial intermediaries. IIFCL will ensure that the
bankruptcy or financial difficulties of the parent/ sponsor should not affect the
financial health of the SPV.
(j) A due diligence on the viability/ bankability of such projects should be ensured to
the effect that revenue stream from the project is sufficient to take care of the
debt servicing obligations.
(k) Projects undertaken by public sector entities which are not corporate bodies (i.e.
public sector undertakings which are not registered under Companies Act or
which are not Corporations established under the relevant statute) may not be
financed by IIFCLs.
(1) IIFCL may enter into take-out financing arrangement with IDFC/other FI's.

Adequacy to meet profitability in terms of ROI / IRR/ DSCR will be ascertained.

Capacity utilization Production efficiency and cost.

1) In case of new unit, any sharp build -up of capacity utilization within one year may
be unrealistic. While higher level of capacity utilisation during the optimum year of
operation may sometimes be projected in respect of many products, these
projections should be compared with the actual capacity utilisation being achieved
in the industry.
2) For an existing concern taking up an installed capacity of plant should be assessed
and finalized on the basis of section-wise capacities of the plant & machinery.
3) For new project, unit selling price should be based on prevailing price in the
market. In the case of an expansion project, it should be based on the realized
prices.

Cost of Project
The reasonableness of the cost of the project as submitted by the borrower should be
thoroughly examined. Realistic estimates based on the industry trends and past similar

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projects comparisons should be used so as to conserve scare resources and prevent cost
over-runs.

The main components of the project cost and main issues concerning their content are
briefly discussed below.

(i) Land and Site Development

The cost of land must include conveyance charges and should be based on actual as per the
agreement with the vendors. Other costs to be examined are premium on lease hold,
development charges, etc. The copy of sale/ lease deed should be obtained and examined
for ascertaining the sale consideration. The prevailing prices in nearby area could be
obtained. Land Registration Department of the Panchayat/ Village Officer/ Corporations
Development expenses must include cost of leveling of land. Laying of roads and gates etc.
Assessment of land cost should include costs involved viz, roads, railway sidings, etc. For
large projects there are other costs involved in selection of certain sites in terms of
resettlement of displaced inhabitants. This should be accounted for in the project cost.
Depending on the characteristics of the site in terms of soil quality, metrological conditions,
etc., there may be additional costs in terms of development expenditure.

(ii) Building
The cost of proposed building should include the cost of factory, administrative building,
housing, civil work for effluent treatment plant, godowns, railway siding, boundary walls,
garages, sewers, water tanks, drainage, architect / consultant fees, etc. The cost should be
based on the architect's estimates. The rate (per sq.m.) of construction should be compared
with the cost of like structures in case similar projects. This may, however, vary depending
on site conditions and other meteorological and geological factors.
While assessing the cost of civil works in respect of projects with a relatively shorter
implementation period of up to one year, the current estimates with regard to various
building materials as also construction charges could be used. In the case of projects with
implementation schedules exceeding one year, the current cost estimates should be suitably
adjusted for escalation during the period of implementation.

While assessing the cost of civil works, the following aspects might also be kept in view:
• Adequacy/ reasonableness of built-up area of various sections.
• Obtaining competitive bids for civil contracts with arms length relationship between
parties concerned.
• Discouraging departmental execution of civil work.

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• Adequate provision for housing in respect of projects located in remote/rural areas

should be made in the project cost estimates.

(iii) Plant & Machinery

Estimates of plant and machinery should be based on quotations / purchase contracts
entered into between the applicant and the suppliers. These contracts should, have been
finalized after obtaining competitive quotations from alternate suppliers and selection
should be done not merely on the basis of price alone, but also technical evaluation,
reputation of suppliers, delivery period, terms of payment etc. For large sized projects,
international competitive bidding procedure or limited competitive bidding procedure
should be followed. The cost estimates should be scrutinized to ensure that erection and
commissioning charges, taxes and duties, insurance, freight charges, etc. are included and
detailed break up thereof should be given. Provision should be made for foundation,
installation, spares, electrical, piping, insulation needs, etc. Some of the main points to be
noted in this regard are:
• Wherever latest quotations with firm prices are available, the same (after due
scrutiny) may be relied upon in the case of equipment and no further escalation in
cost be provided.
• Where the quotation is not firm but escalation clause is provided in supply
contracts, the cost of equipment might be worked out taking into account the impact
of escalation clause.
• Where the quotations/prices are only indicative/budgetary, suitable escalation on
account of inflation should be provided.

(iv) Technical Know-How & Engineering Fees

The reasonableness of technical know-how fees should be examined and the contract
terms with the consultants / supplies of know-how should be scrutinised. Besides the
main fees_ the expenses for visiting technicians should be provided for, based on the
agreement entered into between the company and the consultant/supplier of know-how.
(v) Miscellaneous Fixed Assets
This would normally include furniture, office equipment, tools, vehicles, equipment
for distribution of water, steam, power and lighting, laboratory and workshop equipment,
effluent disposal plant, firefighting equipment, etc. It is necessary to ensure that all
necessary items are reckoned in the cost estimation.

(vi) Preliminary & Preoperative Expenses

In the case of new concerns, preliminary expenses incurred by the promoters in connection

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with incorporation/formation of the concern and other related legal expenses may be
reckoned in the cost estimates. The concern would need to incur certain essential expenses
during the implementation period, viz, capital issue expenses, expenses for raising
equity, finance charges on borrowings during construction period, establishment expenses,
guarantee commission, commitment charges/Front end fees, start up expenses, security
deposit with Electricity Boards for power connection, margin for bank guarantee,
where applicable, under the Export Promotion Capital Goods scheme, etc. Proper
estimation and provision for such expenses should be ensured.

(vii) Contingencies
This is intended to provide for unforeseen expenses over and above the project cost
estimates due to additions or increase in duties, taxes, transportation charges, minor
project scope / design changes etc. While there can be no hard and fast rule regarding
the quantum to be provided, normally it should be 5% of the firm costs and 10% of the
non-firm costs. The extent of provision will vary depending upon the extent of cost heads
that remain untied and the period of project implementation.

(viii) Cost Comparison

In addition to the micro assessment of various aspects of the costs discussed above, it is
necessary to compare the cost of the proposed project with costs of similar projects
appraised in IIFCL /other Financial Institutions in the recent past to ensure the
reasonableness of the cost estimates. However, it should be borne in mind that variations
in scope of the project, implementation schedule, means of financing etc. will have a
bearing on the total cost of the project and suitable adjustments should be made while
comparing with similar assisted projects.

Means of Financing
The proposed means of financing of a project proposal, as regard its
reasonableness must similarly be examined. The means of financing should conform to
a financially sound capital structuring of the company. Some of the important sources of
finance for a project and the issues thereof are briefly set out below:

i. Share Capital
It is necessary to strike a proper mix between share capital (which is essentially the risk
capital) and debt. The share capital envisaged should be reasonable and a realistic
assessment should be made whether the same can be mobilised in the given economic /
capital market environment during the implementation period within a reasonable
period of time. The right mix of share capital to debt is a prudent.

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The equity by the promoters is assessed and ensured it is infused into the project by the
following funds flow observing the project before the COD:
Equity from internal accruals
Quasi equity through structured products like sub-debt, Partly Convertible
Debentures (PCD) etc.
Resource raising by Private Equity and strategic investors
IPOs etc.

(iii) Internal Accruals

In case of existing concerns, internal accruals invariably form a part of the means of
financing. While examining this source, it should be ensured that the concern's
projected cash generation, based on current realisation and working as also future
prospects- during the period of implementation of the project, is realistic and adequate
enough to meet the proposed cost of the project. A condition should be stipulated
requiring promoters to make good shortfalls, if any, due to inadequate internal
generation.
(iv) Promoters' Contribution:
A certain percentage of the capital cost of a project should be met by the promoters
to ensure that they have reasonable stake in and commitment to the project. Efforts should
be made to maximise the promoters' contribution. Normally, it should be in the form of
equity. Where for any reason, the promoters are not in a position to bring in their
contribution by way of equity; a portion thereof may be permitted to be brought in by way
of interest free unsecured loans to be subordinated to institutional loans.
(v) Term Loans
When the term loan is proposed to be sourced from different lenders, it should be ensured that the
other expected sources of loans are properly tied up, since any gap in the means of financing will
adversely affect the project.

(v) Others
At times Government subsidy/ grants are available for certain projects, the same will not be
forming part of total project cost.

Sensitivity Analysis
While appraising a project the critical parameters of risks shall be identified and expressed
in terms of quantifiable variables such as price, cost, capacity utilization, etc. thereafter, the
financial projections should be subjected to sensitivity analysis and the projects viability in

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such adverse scenarios should be assessed. Sensitivity analysis becomes crucial whenever a
cost component forms a high proportion of the total cost and / or it is nor possible to
estimate the same realistically over longer time frames.

Processing Power Projects

(I) Important Parameters:
Promoters Assessment
-
Post experience of the promoters/ Sponsors in the field, resourcefulness and
capability to arrange finance, implement and run power plant of this magnitude
etc.
Technical Assessment
Process details including special features, operational advantage of the plant, etc
Balancing of sectional capacities to achieve overall installed capacity.
Background of EPC contractor / consortium of EPC contractors their financial
strength, banker's evaluation, rating from credit agency, comments from
Embassy, etc, Details of similar assignments handled in the past and
performance certificate from the users. Terms of EPC including penalty clause in
respect of delay in implementation/ lower performance, performance guarantee,
etc.
Sources of supply of the major plant & machinery, assessment of their past
performance, performance guarantee, terms of supply, etc.
Background of operation and maintenance (O&M) contractor, details of similar
contracts executed by them and the performance report for evaluation of the
O&M contractor, terms of the contract, including bonus/ penalty clause.
Details of the power purchase (PP) agreement covering capacity charge, variable
charge, security package, letter of credit, Escrow Account, State Govt. Guarantee,
implementation schedule, Force Majeure clause, etc, entered into with the State
Electricity Board (SEB)
Arrangement in respect of evacuation of power, terms including deemed
generation and other penalty clauses, right to terminate PPA etc.
Scope of work, period, fee to be paid, etc to owners/ Lenders engineers.
Railway siding existing / proposed transport facilities and other infrastructure
facilities.
Input of Production
vii. Fuel Supply Agreement (FSA), with the supplier including LDs for non-supply
of fuel. Fuel Transportation Agreement (FTA), approval of fuel allocation by

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I I F C L
Fioann

Govt, terms and condition of supply, modes of transportation of fuel, cost of fuel
etc.
viii. Tie-up in respect of other utilities like start-up power, water, etc,

107 I Page
 Chapter 14
New Business
Committee
(NBC)
 190
A filik
Itrafra.tructur.e
Fineurmee
Company
IIFCL

New Business Committee (NBC)

To improve credit quality, reduce credit risk and better corporate governance and keeping
in view of the current market conditions, New Business Committee for credit (NBC) has
been introduced.

Function- With the introduction of NBC at IIFCL, all new proposals would be considered
for extending credit facility in respect of prime-facie acceptability of the proposal for
undertaking the detailed appraisal through the committee.

Committee Members vis-à-vis Quorum- Proposals may be in- principally decided by the
committee with the presence of minimum three members as follows:
CMD/ ED
CGM- Credit
CGM- Risk Management
CGM- World Bank.
GM- Credit
AGM- credit will be the convener

Loan proposals to the NBC is presented in a format marked as Annexure containing the
specific information like Track record of the promoters, External rating of the account,
MoU/PPA/Non-PPA, exposure norms, SWOT analysis in brief.

Once the proposal is approved by the NBC, IIFCL issues a letter to the Borrower/
Syndicator informing in- principal approval of the loan proposal.

After getting clearance from NBC and on receipt of the proposal complete in all respects,
credit department shall prepare the detailed Appraisal Memorandum on the basis of PIM
submitted by lead arranger/ lead bank and place it before the competent authority for
sanction.

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Chapter 15
Credit
Appraisal
Grid (CAG)

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IL trafroatructure
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11FCI. Comparxv Limited

Credit Appraisal Grid (CAG)

For the purpose of risk evaluation of credit proposals - both domestic and foreign,
Committees christened as 'Credit Appraisal Grids' shall be constituted at Head office level
for vetting credit proposals.

All credit proposals are to be evaluated and vetted by the Credit Appraisal Grid, and on
approval from the CAG these are to be submitted to sanctioning authority for sanction.

Credit Appraisal Grid will constitute the following members:

CGM / GM- Credit

CGM /DGM - Risk Management Department
CGM- Multilateral Agencies
CGM- Empowered Committee
CGM- Corporate Planning

Quorum of the meeting will be three. Where quorum is not available, alternate General
Manager/Deputy General Manager may be opted as member of the Committee.

Credit Appraisal Grid may meet as and when required.

AGM, Credit would be the Convenor of the Committee.

Decision of Credit Appraisal Grid may be made out immediately by the convenor and duly
authenticated by members present-In the meeting. This would form a part of the proposals
submitted to the sanctioning authority.

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4

Chapter -16
Financial
Analysis

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1.clia
Infrastructur.

Corns:m.1-w Liss-artaa
I1FCL

Financial Ratio Analysis

In the infrastructure and project finance the financial ratio analysis is the commonly used
tool for the financial analysis. Financial ratios allow to assess and analyze the strengths and
weaknesses of a given project with regard to such measures as liquidity, performance,
profitability, leverage, and growth on an absolute basis and by comparison to other
companies / projects in its industry or to an industry standard.

Financial Ratios:
In case of an infrastructure projects following_rations are usually considered but not
limited. They are:

1. Profitability Ratios
Profitability ratios measure the ability of a company to generate returns for its
shareholders. Profitability ratios also measure financial performance and management
strength.
i) Gross Profit Margin = Gross Profit / Net Sales
This ratio measures the ability of the company to generate an acceptable markup
on its product in the face of competition. It is most useful when compared to a
similarly computed ratio for comparable companies or to an industry standard.

ii) Operating Profit Margin = Operating Profit / Net Sales

This ratio measures the ability of the company to generate profits to cover and to
exceed the cost of operations. It is also most useful when compared to
comparable companies or to an industry standard.

2. Rate of Return Ratios

Since the capital structure of most companies includes both debt capital and equity capital,
it is important to measure the return to each of the capital providers.

ii) Return on Net Worth = Net Income / Average (Common Stockholder's Equity +
Reserves and Surplus)
This ratio measures the after-tax return on investment to the equity capital
providers of the company.

iii) Return on Capital Employed = [Net Income + Interest (1-Tax Rate) ] / Average
(Stockholder's Equity + Long-Term Debt)

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This ratio measures the return to all capital providers of the company. Interest
(net of tax) is added back since it also involves a return to debt capital providers.

iv) Return on Total Assets = [Net Income + Interest (1-Tax Rate) ] / Average Total
Assets
This ratio measures the return on the assets employed in the business. In effect, it
measures management's performance in the utilization of the company's asset
base.

3. Solvency Ratios
These ratios provide a measure of a company's ability to service debts, expressed as a
percentage. A high solvency ratio indicates a healthy company, while a low ratio indicates
the opposite. A low solvency ratio further indicates likelihood of default. Different
industries have different standards as to what qualifies as an acceptable solvency ratio, but,
in general, a ratio of 20% or higher is considered healthy.

It provides a measurement of how likely it is a company can continue to meet its debt
obligations. The measure is calculated as shown here:

(1) Debt / Equity Ratio = Long-Term Debt/Shareholders' Equity

Debt to equity ratio is the ratio that remains after liability is divided by equity from all the
shareholders. Another way to understand debt to equity ratio is it's the amount that is
owed divided by what is owned. The lower the number, the more attractive the
investment.

4. Activity Ratios
Activity ratios, also known as efficiency ratios, provide an indication as to how efficiently
the company is using its assets. They describe the relationship between the company's level
of operations and the assets needed to sustain the activity.

i) Accounts Receivable Turnover = Annual Sales / Average Accounts Receivables

Accounts receivable turnover measures the efficiency with which the company
manages the collection side of the cash cycle.

ii) Days Outstanding in Accounts Receivables = 365 / Accounts Receivable

Turnover

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Cumverve Limited
11 F C L

The average number of days outstanding of credit sales measures the

effectiveness of the company's credit extension and collection policies.

iii) Inventory Turnover = Cost of Goods Sold / Average Inventory

Inventory turnover measures the efficiency with which the company manages
the investment / inventory side of the cash cycle. A higher number of turnover
indicate the company is converting inventory into accounts receivable at a faster
pace, thereby shortening the cash cycle and increasing the cash flow available for
shareholder returns.

iv) Sales to Net Working Capital = Sales / Average Net Working Capital
Sales to net working capital measure the ability of company management to
drive sales with minimal net current asset employment. A higher measure
indicates efficient management of the company's net working capital without
sacrificing sales volume to obtain it.

v) Total Asset Turnover = Sales / Average Total Assets

Total asset turnover measures the ability of company management to efficiently
utilize the total asset base of the company to drive sales volume.

vi) Fixed Asset Turnover = Sales / Average Fixed Assets

Sales to fixed assets measure the ability of company management to generate
sales volume from the company's fixed asset base.

The above mentioned ratios may have limited applicability in case of infrastructure
projects.

5. Liquidity Ratios
Liquidity ratios measure a company's ability to meet short-term obligations with short-
term assets. These ratios also help identifying an excess or shortfall of current assets
necessary to meet operating expenses.
i) Current Ratio = Current Assets / Current Liabilities

The current ratio is the most commonly used liquidity ratio. Normally, the
current ratio of the subject company is compared to industry averages to gain
insight into the company's ability to cover its current obligations with its current
asset base.

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Ir.firsatrt.tota•re
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Limitcd
IIFCL. Company

ii) Quick (Acid-Test) Ratio = (Cash + Cash Equivalents + Short Term Investments +
Accounts Receivables ) / Current Liabilities
The quick ratio is a more conservative ratio in that it measures the company's
ability to meet current obligations with only those assets that can be readily
liquidated. As with the current ratio, industry norms generally serve as the base
for drawing analytical conclusions.

6. Leverage and Gearing ratios

The appropriate project debt/equity ratio depends on (1) the expected profitability and
operating risks of the project, (2) the adequacy of the project's security arrangements, and
(3) the creditworthiness of the parties obligated under such arrangements.

Long Term Debt/ Tangible Net Worth

= Total long term debt / Tangible Net Worth (Including subordinated interest
free borrowings from promoters).

This ratio is similar to debt equity ratio and provides same inference as debt equity ratio.
However this is a more conservative indicator as it excludes the intangible assets while
computing the shareholder's equity.

The ratio is an indicator of promoters/shareholders stake in business when compared to

total long term debts.

Total Outside Liabilities (TOL) / Tangible Net Worth (TNW)

= Total Outside Liabilities/Tangible Net Worth (Including subordinated interest
free borrowings from promoters)

This ratio takes care .of all external liabilities of the company whether long term
or short term including sundry creditors. The value of denominator does not
include any intangible assets.

Effective TOL Effective TNW =

Effective Total Outstanding Liabilities
Effective Total Net Worth
This ratio gauges the total credit risk of the company including fund and non fund based
limits. Apart from the total external liabilities the numerator will also include the credit

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1.frastructuce

1 1FC
Firunce
Cornvom w
equivalent of non fund based limits of the account. The denominator, effective total net
worth will include paid up share capital and reserves & surpluses, while investments in
sister / associate concerns along-with intangible assets will be deducted.
Fixed Assets to Net Worth Ratio =
Fixed Assets
Total Net Worth
This ratio shows the percentage of assets centered in fixed assets compared to total equity.
Generally the higher the percentage, the more vulnerable a concern becomes to unexpected
hazards and business climate changes.

7. Annual Coverage Tests

Three financial ratios are widely used to measure a project's ability to service its debt
(1) Interest coverage ratio
The interest coverage ratio, expressed as:
Interest coverage = PBT + Depreciation + Interest
Interest
It measures the project's ability to cover interest charges. It equals earnings before interest
and taxes (EBIT), or the amount of funds available to pay interest, divided by interest
charges. Interest charges represent interest that must be paid in cash, whether or not it is
capitalized for accounting purposes. An interest coverage ratio below 1.00 would indicate
that a project cannot cover its interest charges fully out of operating income. An interest
coverage ratio below 1.00 for the first few years of project operations would indicate that
the project will be incapable of supporting the level of borrowings planned for it. Because
of uncertainty regarding future income and cash flow, lenders typically set a threshold
greater than 1.00. For example, they might require that projected interest coverage never
fall below 1.25.

(2) Fixed charge coverage ratio,

The fixed charge coverage ratio takes into account these other fixed charges like lease
payments, etc.
Fixed charge coverage = (EBIT + Other Fixed Charges)
(Interest + Other Fixed charges)

(3) Debt service coverage ratio

The debt service coverage ratio accounts for all debt service payment obligations: Debt service
coverage =

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Infrastructur e
Fina ce
IIFCL Company Lan.

PAT + Interest + Depreciation and other non cash expenses

Interest + Principal Repayments
(1- Tax rate)
where EBITDA denotes earnings before interest, taxes, depreciation, and amortization. The
debt service coverage ratio is interpreted similarly to the other two coverage measures. It is
the most comprehensive measure of the three. When debt service coverage falls below 1.00,
the project cannot fully service its debt out of project cash flow and will have to borrow
funds or seek equity contributions to obtain funds to cover the shortfall. The debt service
coverage ratio is particularly useful in designing the amortization schedule for project debt.
For example, requiring the debt service coverage ratio never to fall below, say, 1.10 would
indicate how much cash flow would be available after making required interest (and
rental) payments to pay down principal.

(4) Cash Flow available for debt service

This ratio, expressed as
Cash Flow from Operations
Interest + Principal Repayments
(1- Tax rate))

indicates the project's ability to cover debt obligations along with interest charges. It equals
cash flow from operations available to pay interest and debt repayment, divided by interest
charges along with principal repayments. The method for calculation along with the
interpretation of the ratio is similar to that of debt service coverage ratio.

Estimating the Borrowing Capacity of a Project

The borrowing capacity of a project is defined as the amount of debt the project can fully
service during the loan repayment period. This period is determined by such factors as the
bank lenders' general lending policies, the risk characteristics of the project, and the state of
the market for bank loans, as well as other considerations.

Bank lenders to a project typically estimate the borrowing capacity of a project by testing
the ability of the project entity to meet its debt service payment obligations year by year. In
particular, project lenders are generally willing to lend an amount that does not exceed
some specified fraction of the stream of cash flow expected to be available for debt service
during the loan repayment period. They also establish certain coverage benchmarks that
must be satisfied.

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Fi
I-irsaitael
IIFC

Loan Repayment Parameters

Bank lenders to discrete, stand-alone projects are seldom willing to lend for periods that
exceed 10 years from the date the project is completed. Exceptions to this policy do exist;
for example, lenders to infrastructure projects, which are typically long-lived, will lend for
longer periods. Sponsors of infrastructure projects have been able at times to arrange bank
loan facilities that provide for a scheduled final loan repayment 12 years from completion
of construction. As a general rule, project financings are structured so that the project
borrowing entity's leverage is consistent with Baa/BBB credit quality.

Financial Appraisal of the project - NPV and IRR calculations

Projects typically involve the purchase of capital assets — long-lived tangible assets such as
land, plant, and machinery. When considering a proposed project that would involve
investing in capital assets, the sponsors should evaluate the expected future cash flows in
relation to the amount of the initial investment.

Discounted cash flow techniques are available to facilitate the evaluation process. The
objective is to find projects that are worth more to the sponsors than they cost—projects
that have a positive net present value (NPV). A sponsor's evaluation of a proposed project
is not unlike an individual's investment decision. The steps are the same:
1. Estimate the expected future cash flows from the project. This is like estimating the
coupon payments for a bond or the dividend stream for a stock, and a maturity
value or terminal sale price.
2. Assess the risk and determine a required rate of return (cost of capital) for
discounting the expected future cash flows.
3. Compute the present value of the expected future cash flows.
4. Determine the cost of the project and compare it to what the project is worth. If the
project is worth more than it costs — if it has a positive NPV — it is worth
undertaking.

Net Present Value Analysis

The net present value (NPV) of a project is the difference between what the project costs
and what it is worth. The best we can do in advance is estimate a project's NPV. We will not
know its true market value, or what it is really worth, until the project is completed and the
returns are collected.

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India
Infrastructure
Firume.
C.mparly Liar'. it ,r1
IIFCL

The Procedure
The NPV of a capital investment project is the present value of all of the aftertax cash flows
(CF) connected with the project—all its costs and revenues, now and in the future:

NPV=CF0+CF1/ (1+r)+CF2/ (1+ r) ^2 +...+CFn/(1+r) A n

Where CFO is cash out flow at inception

CF1 is cash flow at end of year 1, and so on
r = cost of capital

The decision rule to follow when applying NPV is: Undertake the capital investment
project if the NPV is positive.

We estimate the value of a project by using discounted cash flow (DCF)analysis and
computing the present value ' of all the cash flows connected with ownership. This
procedure is similar to discounting the interest payments on a bond or dividends on a
stock, and it is the essence of the net present value method.

Internal Rate of Return Analysis

Another method of evaluating a proposed project is called the internal rate of return
method. The internal rate of return (IRR) is the capital investment project's expected rate of
return. If the cost of capital (required rate of return) equals the IRR (expected rate of
return), the NPV would equal zero. But because of the uncertainty connected with risky
cash flows, the realized rate of return will almost surely be different from the IRR. Earlier
in this chapter, we showed how to find the expected rate of return for a bond — the pretax
cost of debt. Here, we apply those same time-value-of-money techniques to compute IRRs,
the expected internal rates of return for capital investment projects.

The IRR for a project is the discount rate that makes the NPV zero:
As,
NPV = CFO + CF1 / (1 + r ) + CF2 / (1 + r) ^2 +...+ CFn / (1 + r)^ n

IRR is the cost of capital, i.e., value of r, at which NPV = 0

A project is viable if IRR for the project exceeds the cost of the capital.

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1.fra•tIructure

Ak
I 1 F C
Finance
Company 1-intiued

Size Differences
When one project is larger than another, the smaller project often has a larger IRR but a
smaller NPV. The choice between these two projects—and therefore the resolution of such
conflicts — is fairly straightforward. Take the project that will add the most wealth, the one
with the greater NPV. In general, the NPV decision rule is the better rule to follow when
there is a size difference between mutually exclusive projects.

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Chapter 17
Tariff
V/s
Toll
 204
/radio
Ak. 1.fraotructure

1 1 F C L Compsurry Lim it.<1

Tariff V/s Toll

The infrastructure projects to be financed by IIFCL would have some guiding policy to
decide the toll rate or tariff that a project would be allowed to charge. As the revenue from
the project would largely depend on the tariff or toll that the project would be allowed to
charge and the volume of traffic that the project is expected to cater to, apart from just the
tariff/ toll policy regime, the traffic study becomes critical to projections of revenue in a
project.

The following tariff characteristics need to be evaluated :-

• Average Daily Traffic (ADT)
• Hourly variation and Peak House Factor (PHF)
• Directional distribution
• Traffic composition
• Toll Exempted Vehicles
• Annual Average Daily Traffic (AADT)

In this context, the travel characteristics in terms of origin and destination will be also lifted
into in terms of
(i) local and through traffic on the project road
(ii) potential divertible traffic to /from project road to various alternatives routes

Further, it is desirable to ascertain the different categories of toll tickets as mention below :-
(1) Traffic paying normal toll rates (single trip)
(i i) Traffic paying return journey rates
(iii) Traffic paying monthly pass rates
(i v) Traffic paying local concessional rates
(v) Exempt traffic

Scenario Analysis
For toll road projects, revenue streams are generally based on the assessment of the
traffic volume (base and future) crossing the toll plazas and the applicable toll imposed
on the user of the road. There is an inherent element of uncertainty of any forecast and
whilst is not possible to measure risks in a strictly statistical sense (as many of the risks
are largely or partly unknown).

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IIFCL

Low Case
A growth rate 200 basis point (2 percent) lower than base case, for all types of vehicles
modes, as been considered in the present analysis to reflect uncertainty with regards to
economic performance of India due to current global economic situation which is still on
the recovery path.

High Case
The high case is based on a more optimistic economic outlook for future years and
therefore based on growth rates of 100 basis point (1 percent) higher than base case for
every year and for all modes.

No Diversion
It assumes than the vehicles continue using the present accustomed routes.

Max Diversion
Maximum diversion case affecting the maximising the revenue of toll plaza.

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4E----;=.d

Chapter 18
Letter of
Comfort

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11,clias

Ak
Ixdrabstructura
Firau,.•
111FC1- Comps.y Limited

Letters of Comfort (LOC)

IIFCL may, as a part of project financing, issue Letter of Comfort against Letter of Credit
issued by Banks / Lenders. While issuing letter of comfort, following should be complied
with:

Non-fund based business being an important segment, which account for substantial
contribution to Company's income shall be thrust area for the company for profit
maximization without funds outflow. However, in view of potential risks of invocation /
devolvement the company shall be selective on the basis of credit risk and assessment.

1. Guidelines for Grant of LCs Facility

The Borrower if it chooses to open an LC in favor of a third party approaches one of the
members of the consortium, usually the Lead Bank, for this purpose. The Lead Bank along
with participation of other members of the consortium opens LC in favor of the third party.
Hence the LC opened by the LC opening bank is backed by supporting Letter of Comfort
(LoC) from other members of the consortium. The LC opening bank takes a upfront share
in the LC commission and the remaining part is shared among all other participating
lenders including the LC opening bank.
2. Safeguards in Opening of LCs
Before opening LCs, banks should ensure that borrowers have made adequate
arrangements for retiring the bills received under LCs out of their own resources or from
the existing borrowing arrangements.

IIFCL will ensure that the systems evolved for recording the details of off-balance sheet
transactions are properly followed.

126 1Page
 India

Chapter -19
Delegation of
Powers

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Fi
c•", Lir. it.ed
11FC1-

Delegation of Power

In order to align IIFCL's terms of sanction with Lead Bank / Consortium, CMD has been
authorized to approve the following operational modifications in the terms of sanction:

1. Revision in COD without rescheduling principal and or interest payment.

2. Reset in the rate of interest.
3. Changes in shareholding pattern.
4. Giving extension of time for creation of security.
5. Giving extension of time of compliance of pre-disbursement
conditions like environmental clearance, tree cutting permission, fuel supply
agreement, fuel transportation agreement, signing of Power Purchase Agreement,
etc.
6. Extension in the validity of Letter of Comfort for opening of Letter of Credit.
Extension of time limits for various compliances of terms and conditions.
7. Changes in the equipment suppliers, [PC Contractors,
modification in Power Purchase Agreements, etc.
8. Issuance of Letter of Comfort for opening of Letter of Credit, out of the existing
sanctioned term loans.
9. Changes in the capital structure.
10. Any other modifications in line with the Lead Bank.

Delegation of Powers - Credit Department

To streamline working and for effective administrative control, following powers have
been delegated to the Credit Department:

Si. No. Nature of power Approving Authority

Issue of sanction letter with term sheet to the
1. CGM/ GM Credit
borrower. -

2.
New proposal not-considered/ in-principal
approval to borrower/ syndicator/ arranger. CGM/ GM Credit-

3 Authorising officer(s) for signing of agreement

documents like CLA, amended documents, etc. CGM/ GM Credit-

4 Approval for disbursement of 1st installment in the

account CMD

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Carripainnev Limited
IIFOL

5 Approval for disbursement of 2ndtill last (including

last) installment in the account CGM/ GM - Credit

6. Approval for revision in Rate of Interest aligning

to the revision made by Lead Banks/ Consortium CGM/ GM - Credit

7. Approval of deputation of officer for attending site

visit and consortium meetings CGM/ GM - Credit
Approval for taking on record site visit/
8. consortium meeting reports and minutes of the CGM/ GM - Credit
same
9. Approval for prepayment of account ED
10. Approval and issue of No dues certificate for
closed accounts C
CGM/ GM - Credit

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Chapter -- 20
Documentation

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Documentation
1. As there are a number of parties involved in a project besides the borrower and the
lender, like the contractors, fuel suppliers, transporters, etc. legal contracts and
documentation are intricate and complex. Further, generally, in all projects, overseas
parties are involved in contractual obligations necessitating both Indian and
overseas legal counsels. The documents are drafted separately for each project as
each project requires a distinct set of documents for protecting various interests. The
documentation process involves integration of commercial and legal aspects.
2. Documentary complexity is a fact of life for project finance. Contracts / deals can
run into well over 1000 pages after taking into account permits, concessions,
operating agreements, off-take / supply contracts etc. Further, it is not merely the
sheer volume of documents but also their inter-relationship, which adds to the
complexity. It is often difficult for legal counsel to capture every year actual /
perceived risk in project finance documentation.
3. As infrastructure projects are financed on non/limited recourse,
contracts/agreements distribute risks amongst the parties to the project. The
contracts also structure the flow of money/revenues through various accounts to
enable the lenders to capture them effectively. Insurance contracts providing against
risks such as force majeure, termination, delay, etc. are an important part of
documentation in a project and are required to be examined critically by the legal
counsel.
4. Besides, as lenders to the project shall be sharing the security and the benefits of
contracts assigned to them, contracts /agreements are drafted amongst them
keeping in mind the commercial and legal aspects of lenders inter-se relationship
and the collective interest of the lenders vis-à-vis the project.
5. Contractual framework in project finance originates with the 'core' documents,
which would provide the basis on which the project is being implemented. On the
basis of the 'core' documents, contractual relationships are entered into which
finally ties down each party in the project to other.
6. (i) Generally the Lead Bank with consultation of all participating lender's appoints a
reputed Law firm, as LLC, to draft and prepare the required financing and security
documents (Loan Documents). However, in those cases where IIFCL enters as New
Lender through route of down sell of loan by the existing Lenders with Deed of
Accession or Novation, then it requires to appoint an Independent Advocate for
drafting of required Loan Documents and Due Diligence Report.
(ii) Generally LLC to certify and prepare the due diligence report that the all
documents are legally valid and enforceable and proper stamp duties have been

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levied thereon. Sometimes, there is no LLC / Advocate for the aforesaid purpose,
then, Independent Advocate has been appointed for the specific Due Diligence
Report on the IIFCL point of view.
(iii) Lead Bank / LLC to ensure the compliance of the KYC/ Anti Money
Laundering Norms/ Guidelines and obtain all required documents from Borrower/
Promoters/ Sponsors in regard thereto.
(iv) LLC to inform the status of compliance regarding the applicable permits,
permissions, approvals and clearance required for the project.
7. The objectives of documentation in project finance, besides establishing the debt and
its enforceability, are:
i. To assume only measurable or measured risks.
ii. To have control over key project decisions.
iii. To take control of the project in case of default.
iv. To monitor the project both during the construction and operation stage.
8. The essential documents/agreements required for developing an infrastructure can
broadly be classified into:
A. Project Documents
The documents that cover the various aspects of implementing the project are called project
documents. Project Documents can be broadly classified as under:
i. Concession Agreement
The Concession Agreement is an agreement with the Government/statutory body
granting the right to the project vehicle to develop the project.

ii. Shareholders Agreement

The Shareholders Agreement is an agreement between the sponsors / investors for
management of the project vehicle and development of the project. This agreement
is crucial from the Lenders perspective, as it would determine the extent of
commitment of each investor and the intention with regard to management and
control of the project. The main point to be examined here is the distribution of risks
between the investors and the promoters.
This agreement should bind the shareholders to invest in the project vehicle.
Further, the Lenders would like to ensure that the main project developers are not
vested with the right to exit. Thus, this agreement should contain clauses prohibiting
the promoters / sponsors to sell the shares for a particular period, no charge, pledge,
lien, encumbrances or securities in shares.

132 IPage
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1.frmstructura

IIFOL Comp...3w Lis. itArd

iii. Engineering Procurement and Construction Contracts (EPC)

The Engineering Procurement and Construction Contract (EPC) is an agreement
between the project vehicle and the construction contractor for construction of the
project / facility. It's a critical project document and also relates to the management
of risks in the construction period. As stated above, the construction phase is a stage
of high risk on account that failure to complete the construction would have
significant repercussions. This document is examined by the lenders in great detail
for inter-alia, i) time frame for construction of the facility of the project is to be
linked with the Concession Agreement. ii) standards and specifications as to which
infrastructure facility is to be designed / construction, commissioning and testing as
per the Concession Agreement, mechanism for monitoring the project, co-ordination
between various suppliers and contractors, management and settlement of disputes,
terms of payment, etc.

iv. Operation and Maintenance Contracts (0 Sr M)

The Operation and Maintenance Contract (0 & M) is an agreement between the
project vehicle and the operation and maintenance contractor. This agreement
should provide that the operator shall carry out all scheduled maintenance, payment
mechanism, issuing of bills to consumers for the service provided, etc.

B. Finance Documents
Documents/Agreements that govern the financing of the project are referred to as
financing documents. Major Financing Documents are as under:

i. Common Loan Agreement/Term Loan Agreement/Facility Agreement/Rupee

Facility Agreement.
ii. Inter Creditor Agreement.
iii. Trust and Retention Account Agreement/Escrow Agreement.
iv. Hypothecation Agreement/Deed of Mortgage.

Common Loan / Facility Agreement

This is one of the key loan documents signed between the lenders and the borrower
capturing the entire common term sheets of all the lenders and other terms and conditions
normally stipulated for the facilities sanctioned to the borrower. Since the term sheets given
by the lenders are not all inclusive and cover the critical terms only, proper drafting of this
agreement is paramount as it delineates the rights and obligations of the lenders and the

133 IPage
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adok
Irafreutructux-e
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Comparvy
11FCI,

borrower for the loan facilities being extended. If debt includes facilities in different
currencies or are lender specific, separate facility agreements will be entered into.

The key points to be covered under this agreement are:

a. The amount borrowed
b. Term of the loan and repayments.
c. Interest rates.
d. Conditions for draw down.
e. Use of the proceeds.
f. Financial covenants.
g. Security structure

Inter-Creditor Agreement
Any financing agreement involving a number of Lenders and a single borrower requires an
Inter-Creditor Agreement. The parties to this agreement are all the Lenders under different
loan agreements, lenders with loans of different maturity and sometimes even subordinate
lenders.

The purpose of an Inter-Creditor Agreement is to provide procedures, agreements and

understandings on a) co-coordinating priorities in loan repayments b) for accelerating the
maturities of loans c) for establishing loss sharing, etc. The intention in this agreement is to
prevent disputes between creditors which might jeopardize the interest of all the creditors.
When the loan is going bad, each lending institution tries to protect itself in the best
possible way and obtain an advantage over the other creditors. The procedures in the Inter-
Creditor Agreement forestall this. Under this agreement no lender can take legal action
except by following the procedures laid down in the agreement. Further, at least 2/3 or half
of the lenders, based on the principal balances, are required to agree for any action. This
agreement is also beneficial to the borrower as it has to deal with only one Lender, Lenders
Agent.

Trust and Retention Agreement

This is an agreement between the Lenders and the Borrowers for controlling the project
revenues. The agreement would contain various deposit sub-accounts into which various
amounts, equity, loan, etc., would be credited. The agreement would also contain
withdrawal sub-accounts through which the borrower would withdraw the amount for
various purposes.

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Ind is
Infrastructure
Finance
I I F C L Comus,aray Limited

Security Agreement
The main Security Agreements are the Hypothecation Deed and / or the Indenture of
Mortgage. The Lenders have a first pari-passu charge on all movables, immovable property
of the borrower. Further, in this agreement all documents / contracts are assigned to the
Lenders. The objective of this agreement is to permit the lender to step- in and to control
the project. Security in project finance is for a defensive purpose - to prevent third parties
from interfering with the project.

Project and Finance Documents together are referred to as Transaction Documents.

Besides the documents mentioned above, certain sector-specific documentation is also

required, as explained in the following table:

Key Transaction Documents for each Sector:

Sector List of Main Sector-Specific Documents
1. Power
Fuel Supply Agreement, Power Purchase Agreement, Fuel Transport Agreement

2. Roads
Concession Agreement, Traffic Study, Multipartite Agreement
3. Ports
Concession Agreement, Traffic Study, O&M Agreement
4. Oil & Gas
Fuel Supply Agreement, Off-take Agreement
5. Airports
Operations Management & Development Agreement (OMDA)
6. SEZ
State Support Agreement, Shareholders' Agreement

135 !Page
 t•d

Chapter 21
Monitoring
Mechanism

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Ahh, India
Infrastructure
Finance
11.1FCL Corniparry Limited

Monitoring, Supervision & Follow-Up

In the circumstances, the follow-up of projects during its implementation is a specialized
task calling for close monitoring and interactions with multiple agencies involved in
financing/ promoters/ consultants and sharing of security.

Before financial closure and the first disbursement, there are certain pre-commitment, pre-
disbursement conditions etc., which need to be met. There are also some financial
covenants of the guarantors to the project that need to be verified. At the time of sanction,
documentation and disbursement, monitoring schedule would be drawn up duly
examining its adequacy and the compliance of the conditions aforesaid would be furnished
at periodical intervals. The equity infusion schedule also needs to be followed up to ensure
maintenance of debt equity norms envisaged. The achievement of project milestones with
the follow-up report has to be compiled with.

At the time of seeking disbursement of funds for Project construction, the project
companies are required to submit information on the project status and implementation
listing out the various items of expenditures incurred

Lenders' Engineer (Independent Engineer wherever appointed) would be visiting the site
at periodical intervals and feed information regularly about project progress. The
disbursements would be made taking into account the information submitted by the LIE,
the Company and the auditors - wherever feasible, information would collated.

The officials of IIFCL would undertake regular site visits as stipulated. Compliance with
the stipulated terms and conditions needs to be ensured at various stages of the project
implementation, including:

(A) Compliance regarding Pre-Commitment conditions/ Covenants of lenders, which

will include:
ii. All Clearances/ permissions like land acquisition, licenses, fuel linkage, rail
linkage etc.
iii. Contract finalization like Shareholder's agreement etc.
iv. Documentation, etc.

(B) Compliance regarding Pre-Disbursement conditions / Covenants of lenders,

which will include:
i. Loan tie-ups

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Irtfrastructurs
Firamrice
Adifi Cc.r.P.r., Limited
IIFC L

ii. Raising Equity as stipulated

iii. Meeting Financial parameters
iv. Security Creations
v. Finalization of various agreements like EPC Contract, raw material Supply and
Transportation, O&M Contract, Escrow, etc.
vi. Observations, if any, made by Credit Auditors of Bank

(C) Compliance of other conditions of the Lenders during Construction Phase viz.,
i. Regulatory time schedule
ii. Physical completion schedules
iii. EPC Contract terms and compliance thereof
iv. Project cost- estimated and actual- commitment of funding, details of escalation,
if any
v. Expenses schedule- Estimated and Actual - funding thereof
vi. Liquidated damages, if any
vii. Debt Equity infusion schedule
viii. Progress of the project
ix. Lender Engineer's - scope and reports
x. Issues raised by the LIE in his report(s)
xi. Chartered Accountant's Certificate on sources & uses of funds
xii. Completion test requirements and compliances
xiii. Insurance and other hedging mechanism
xiv. Creation of charges on securities, etc.
xv. Inter-creditor arrangements and compliances, etc.
xvi. Environmental and license conditions and compliances
xvii. Cost Escalation, if any
xviii. Cost and time overruns, if any
xix. Working Capital tie-up

(D) Compliance during Post-Construction Phase, which shall be in line with the
normal follow-up including aspects as under:
i. Projections- Business, Profitability, Debt-Equity ratio and actual performance
ii. Compliances in respect of appointments of key personnel for various functions
iii. Compliances regarding statutory/ tax obligations
iv. Environmental compliances
v, Expansions - as per stipulations, conditions on group's expansion,
diversifications, cross investments, etc.

138 IPage
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Alik India
Infrastructure
Finance
Company Limited

vi. Management and decision making systems in regard to Joint Ventures, etc.
vii. Financial Covenants and compliances thereof - dividend policy, etc.
viii. Certificate regarding non-violation of the covenants as per the common term
sheet
ix. Position of court cases, if any, against the company

The site visits would also be combined with that of other lenders and disbursing branch
would also be involved. The visits would also ensure interactions with project managers/
co-sponsors during the implementation stage and with the Working Capital bankers in the
Post-Completion stage. Non-compliance of critical covenants that are vital for project
viability would be given utmost importance and site visit reports would be submitted with
the course of action proposed. When the Project implementation is complete, a Completion
Audit would be conducted with the help of Lenders' Engineer certifying the various
parameters of performance envisaged in the project contracts. This will be a source of
comfort for the lenders and the project participants as well, including equity holders.

After the construction phase is over, the follow-up of the project would be undertaken as
per the terms and conditions stipulated for the loan. It should also be examined whether
the actual performance and the cash flows of the project company are in line with the
project estimates and appropriate measures initiated for addressing any variations. Any
financial irregularity (e.g. default in payment of interest, principal repayments) observed in
the project would be reported. However, the project company's inability to meet the
financial covenants stipulated such as current ratio, TOL/ TNW, interest coverage ratio etc.
would be reported to Management as the case may be, as per the procedure laid down by
the Institute.

Project Monitoring as Part of Disbursement Process

The Department shall use mechanism of disbursement to monitor the physical and
financial progress during every stage of project implementation. Deviations of material
nature, if any, shall be immediately discussed at the Joint meeting of the project and
outcome/record of such meetings may be maintained by way of report/note prepared by
officer attending such meetings, followed by copy of the minutes of such meetings
obtained from Lead Bank. The note of progress report has to be submitted to GM (Credit)/
CGM (Credit). Annual review of accounts of all projects will be submitted to the
CMD/ Board under the format referred in (Annexure).

139 IPage
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Ak
India
1.fruutz-ucture
Finance
Cornparty
IIFCL

Post Sanction/ Disbursement Supervision & Monitoring

Objectives
Infrastructure projects are more complex and require close follow- up during the initial
phases of commercial operations. In the circumstances, the follow up during its
implementation is a specialized task calling for close monitoring. Monitoring of the project
is required at all the stages of project. At the time of sanction, documentation and
disbursement, monitoring schedule would be drawn.

Proper monitoring and supervision of the facilities extended by IIFCL is an activity of vital
importance with the following broad objectives:
o Collection of data relating to physical and financial performance of assisted
companies;
o Analysis of the data/information to assess the performance vis-à-vis appraisal
estimates;
o The shaping of the project vis-à-vis the milestones planned as per original
schedule.

Unless otherwise waived in the TOS, all transactions approved by IIFCL shall be subject to
the following supervision/monitoring requirements.

Site Visits
First Site Visit: DO/ other officer will be a member of the visiting team of representative.
The site visits will be arranged by the Lead Bank or the Borrower. It will be desirable that
Dealing Officer should join for the first visit before commencing any disbursement. This is
only applicable where the site visit is proposed by the Lead Bank, however many times
disbursements are proposed without having pre-disbursement site visit based on LCN
issued by lead bank. Sometimes site visit is deferred or postponed in some cases; however,
the same is undertaken before the next disbursement. In such event IIFCL may fall in line
with the stand taken by Lead Bank and other lenders.

Subsequent Site Visits: As far as subsequent visits are concerned, the Dealing Officer
should ensure at least one visit in a year for each project. In case such visits are not being
arranged by the Lead Bank then Dealing Officer may take it up with Lead Bank and
request for such visits. In special circumstances where such visits are not feasible due to
convenience of all lenders or for any other valid reasons, the same is put as a note under
Monthly Progress report submitted to competent authority. In such exceptional cases,

140 IPage
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IIFC L

IIFCL may depend on the inspection report of the Lead Bank or any other lender's
inspection reports.

Report on Site Visits: After each site visit, the Dealing Officer shall submit a Site Visit
Report to the appropriate authority (refer Annexure - for format) and also obtain the copy
of the joint visit from the Lead Bank. In case there are major deviations in Project
Implementation or in progress vis-a-vis the original schedule, the Dealing Officer must
highlight such variances with justifications or concern as the case may be.

Cost of all such visits will be generally borne by the SPV, however with the approval of the
GM -Credit, cost of such visits can be borne by IIFCL.

Monitoring Reports
During the currency of the financial assistance, the Lead bank will provide structured
information relating to the SPV to IIFCL through the following reports:
i) Implementation Period Progress Report
As a part of understanding amongst lenders at joint meeting, lead bank should obtain
regular reports on project implementation. The report shall cover information on
physical and financial progress, performance vis-a-vis milestones, details of capital
expenditure and means of finance, status of approvals, creation of security, pending
litigation; etc.

All project implementation progress reports must be accompanied by following:

✓ LIE's report giving physical status and likely delay in implementation if any.
✓ SPV's Statutory Auditor's certificate.

Significant deviations, if any, observed in the performance of the project vis-a-vis

projections as per the appraisal, including any reappraisal/total review. The reasons
for such deviations shall be studied and ascertained by the Dealing Officer and
brought to the notice of GM-Credit/CGM- Credit/ CMD/ Board with proper
Analysis and if feasible discuss directly with Lead Bank/ SPV and take corrective
action.

ii) Operations Period Report

This report must be furnished by all SPVs after project completion and the project is
put to operation on a quarterly or semi-annual basis during the currency of the
financial assistance. The report seeks information on actual physical and financial

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India
Infrastructure
Finance
Company LArnitecl

performance vis-à-vis projections, status of key approvals, status of insurance,

pending litigation etc.

iii) Project Completion Report

Upon the project achieving Commercial Operation Date (COD), Dealing Officer shall
prepare a Project Completion Report. The report should compare (actual vs.
appraised) important items such as cost & means of financing, determine reasons for
variations, if any, and the likely impact on the project economics.

iv) Annual Report

The SPV must furnish to IIFCL, a copy of its audited annual accounts/annual report
within six months from the date of closure of its accounting year. The Credit
Department shall review the financial performance, including the auditor's report and
Directors' report and hold discussions with the SPV to seek clarifications, if any.

Report of External Agencies (TRA, LIE, Consultants/ Auditors)

i) Lenders' Independent Engineer (LIE)
Independent Lenders' Engineer (LE) is appointed to review and report on the
progress and other implementation related issues to the lenders. Generally, the LE
visits the site every month/quarter and files his report to lenders. In cases where the
LE has been appointed, a copy of the LE's report should be received and reviewed
by the Dealing Officer.

ii) Environmental and Social Monitoring Review (ESMR)

While doing ESMR, the member shall refer to report prepared at the time of granting
of funds for the project, post-disbursement environmental and social conditions
stipulated related to the project.

iii) Auditor's Certificate

Implementation Stage: The end-use of funds is an important requirement of the
project monitoring and supervision. Each disbursement request from the borrower
should be accompanied by a certificate from the Chartered Accountant of the
borrower certifying the project cost incurred till the certificate date and the means of
finance for the same.

Project Completion Report: Upon the project achieving physical completion, the
borrower should furnish a certificate from the statutory auditors / independent

142 IPage
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In.fraztructura
Firma-Ice
IIFCL Comparav Limited

auditors of the borrower certifying the completed project cost and the actual means
of finance for the same.

iv) Lender's Insurance Advisor (LIA)

The job of LIA would be to ensure that appropriate insurance cover has been
obtained by SPV. LB will review that various policies continue to be in force and
effect with details of all insurances required viz. validity of these insurances, amount
of insurance, nature of cover, list of assets which are insured for the project. LB to
confirm that valid and adequate insurance cover has been obtained on the project.

v) Lender's Legal Counsel (LLC)

The job of LLC would be to ensure proper valid & enforceable documents are
drafted taking into consideration views of all lenders and get the same properly
executed. LLC shall also issue due diligence certificate regarding validity, legality
and enforceability of documents.

Project Review
With a view to develop in-house expertise and as an ongoing monitoring process it is
recommended that dealing officer performs the following:
o Review Of Undisbursed Sanctions
o Review Of Disbursed Cases
o Performance Review of Projects in Operation
o Planning & Policies for Credit Functions

1. REVIEW OF UNDISBURSED SANCTIONS

Cases where disbursement has not commenced within 12 months of sanction would
be reviewed and reported to the Board.

2. REVIEW OF DISBURSED CASES DURING IMPLEMENTATION STAGE

An annual review of all borrowers whose projects are in construction phase shall be
reviewed as an ongoing monitoring.

3. PERFORMANCE REVIEW OF PROJECTS IN OPERATION

i) Review of SPVs: It shall be carried out for monitoring purposes This will
provide guidance for future projects and experience gained may also be actively
used for developing future portfolio.
The review shall look into the following:

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India
I.fr.structur.
Finance
Company Limited

o The assumptions made at the time of evaluation of the proposal

o Current project status, performance
o Payment track record
o Adequacy of security provided by the client
o Adequacy of insurance
o Compliance with loan covenants
o Outstanding issues, if any

ii) Annual Review of Sanctions by IIFCL: All sanction accounts shall be reviewed
and a note will be submitted to the Board.

Monitoring Of Problem Loan, Based On Early Warning Signs

In spite of sound risk management and appraisal processes, some accounts may develop
weakness on account of changes in internal or external conditions. Monitoring mechanisms
need to be put in place to identify such weak accounts before they turn NPA. Such
mechanisms will help IIFCL take remedial measures and limit losses.

Tracking process
Standard assets with certain financial and/ or operational irregularities as well as
borrowers with a weak financial position should be monitored effectively. Certain
irregularities have been defined below to help IIFCL identify early warning signs.

Financial/ Operational Irregularities

o Quarterly/ monthly interest overdue for more than 30 days
o Principal/ instalments overdue for more than 30 days
o Diversion of funds
o Incomplete documentation
o Non compliance of terms and conditions as per the agreement

Weak financial Position

o Poor financial performance in terms of declining sales and profits, cash losses, net
losses, erosion of Net worth, management of escrow account, etc.
o Slippage in the completion of the project stages or getting the required clearances.

The above list is not exhaustive and there may be other signals which can be noticed
during appraisals/ inspection of the site.

144 [Page
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Chapter -Er 22
Special
Mention
Accounts

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A Ind:.
Ittfelutstacture
Fix...truce
I F C L CcorrimarLy Limited
I

Special Mention Accounts (SMAs)

The objective underlying the exercise is to evolve a common minimum framework to tackle
the problem of slippage of NPAs, and then work out strategic response in keeping with the
broad thrust of these guidelines.

Based on RBI guidelines on Special Mention accounts, the concept of weak accounts was
introduced to capture early warning signals in the borrower's accounts. Categorising assets
under 'special mention' category is an indicative framework for internal control purpose,
for assets with potential weaknesses which deserves close attention and follow up.

A Special mention account may briefly have the following main characteristics:
1. An account is considered as 'weak' if it is irregular/overdrawn (except where
irregularity is due to interest) for more than 30 days,
2. External rating of the project.
External rating below BBB
COD delayed beyond 2 years
COD delayed beyond 1 year upto 2 years
COD delayed upto 1 year
Rating below 'BBB' with No extension in COD
3. Extension in COD (rating above 'BBB') carrying higher risk weight and higher provision
i.e. to the extent of 150%.
4. COD achieved but rating below BBB
5. Extension in COD of the project with change in repayment schedule
6. Cost overrun in the project

146 'Page
Chapter -- 23
Checklist for
Regional
Offices

147/Page
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India
Infrastr.t.r.,
Finance
Company Limited
11FCI.

Checklist for Road Sector

Sl. No Particulars
1. PPP/ Non-PPP/ Public
2. Project cost: Appraised cost - positive grant, if any
3. Promoters capability to infuse equity to the project
4. Promoters credit and marketable worthiness- past track record
5. External rating of the promoter company
6. Techno Economic Feasibility Report
7. Financial viability and appointed date
8. Concession Period
9. Project Schedule
10. Operations & Maintenance
11. Traffic Study
12. Projected Toll Collection
13. Status of Land Acquisition
14. ESS status
15. Projected Financials
16. IRR and Sensitivity Analysis

Checklist for Power Sector

Si. No Particulars
1. PPP/ Non-PPP/ Public
2. Project cost: Appraised cost - positive grant, if any
3. Promoters capability to infuse equity to the project
4. External rating of the promoter company
5. Techno Economic Feasibility Report
6. Financial Viability and appointed date
7. Project Schedule
8. MOU
9. Power Purchase Agreement (PPA)
10. Transmission Agreement
11. Project cost- cost of land
12. Fuel tie- up status- Domestic/Imported
13. Coal cost (Mining, Transportation, Boiler) Vis a Vis Cost of Power Generation
14. Technology
15. Status of Clearances of Various Statutory Approvals
16. Land Acquisition
17. BTG Supplier
18. LC : Purpose
Name of LC Issuing Bank
Commission
Time Limit

148 !Page
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Infrostructure

Cosaas.arry Limityd
IIFCL

24
—
Annexure

149 IPdge
 231

24. 1 RO MONITO RIN G FORMAT Mon

Prop osa ls Genera ted by Regiona l Office _ Mum bai/ Hy dera ba

1
Status o f Prop ,

.
Name of the Promoter/
/ add u0 N/ddd

a,

i
tA
l
8
Prop osa l Deve lop er no psj Pos ition NBCforma t c omplete

L) L)
44-v
on PIM

Enc losed Applica ble c hecklist and

NBC Forma t

Site Visits during the Month

Name of the Da te of S ite Site Vis it rep ort

c .7) '''
Proj ec t Visit su bm ission da te

Enclose d Site v isit rep ort as per format

Consortium Meeting during the Month

Imp ortan t
Da te o f Consor tium

(1)
—
Name of the Issues
Consortiu meeting rep ort

Z
O
Proj ect impacting the
m meeting su bm iss ion da te
a/c (if any)

I Enc losed Consort ium meeting rep ort as per forma t

 232
l,-.die
1..firartructuree

Ah, Firssr.c..
11FCL Corrnpoway Limited

India Infrastructure Finance Company Limited 24.2

Proposal for New Business Committee - Credit
(Name of the Proposal)

SI.
No. Particulars Details
1 Nature of the Project
(PPP/Non PPP/PSL)
2 Sector
(a)
State
(b)
Project
(c)
Project Cost
(d)
Means of Finance Particulars Amount (Tcrore)
(e)

Total
Request for Loan amount from
(f) IIFCL
3 Name of the
(a) company/SPV/Promoter/ Group
Shareholding Pattern Promoter % share
(b)

Total
4 MoU/PPA
5 Credit Rating by External Agency
6 Single Borrower Exposure
- Proposed Borrower Exposure
7 Group Borrower Exposure
- Proposed Borrower Exposure
- Exposure Norms (Current)

8 Track Record of the Borrower

(Including existing exposure with
IIFCL)

9 Brief about the proposal (Strengths/Weakness and mitigants/ IRR/D:E ratio etc)

151 'Page
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India
Infrasta-aactur•

Aik Cc.arkp.aw Limited

IIFCL

24.3

INDIA INFRASTRUCTURE FINANCE COMPANY LIMITED

Record note on Consortium Meeting dated —

Project name

Project Background -

Conduct of Account -

Issues deliberated in the meeting -

The minutes of the consortium meeting and copy of presentation by the company official are enclosed.

Submitted for taking on record.

Attending officer

152 IPage
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India
I.frastructure
Finance.
Company Limited
IIFC L

24.4

SITE VISIT REPORT

I. NAME OF THE OFFICER

II. DATE OF SITE INSPECTION :

Particulars Remarks
2.1 S.
. N.
I.
Name of the Company/SPV
Promoter/Group
Promoter % share

2.
Nature of Project
Sector
State
3. PPP/ Public Sector / Private Sector
4. Risk rating by External Agency
Risk rating by IIFCL
5. Cost of the project Means of finance
(Rs./ Crore) (Rs./ Crore)
Particulars Particulars Amount
EPC Cost Equity
Prelim. &preop. Exp. Subordinated debt
Supervision Expenses Senior Debt
Financing Charges Total
IDC
Contingency Provisions
Working capital
Total

6.
Lead Bank

153 IPage
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Ad diilk
India
Infrastructure.
Finance
IIFCL Company Limited

7. Total Amount of Term Loan -

Debt allocation to various Banks/ lenders (Rs./Crore)

-

Name of the lending Allocated Disb.

made 'Yu share of
Institution Amount dish. RoI (%)
far so
PNB

IIFCL

Central Bank of India

Punjab & Sind Bank

TOTAL

8. Whether all the terms & conditions of

sanction have been complied with
9. Last visit by IIFCL & Comments (Name
of the officer and date of visit)
10. Lender's Engineer/ Lead Bank/ IIFCL's
comments on the overall performance
of the company/ project
11. Whether the company is regular in
servicing of dues? (Interest and
Principal)
12. Penal Interest rate charged by other
Consortium Members
Any other charges levied by other bank.
13.
Status of Equity -

Equity Brought In

Promoters contribution

Unsecured loans from promoters

Total
14. Status of ESSF issues

15. Present Status of Project

Status of Land Acquisition

Scheduled Financial progress

Actual Financial progress

Scheduled Physical progress

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Akk
11F
1.frastructure
Finance
Cc■Irrhg"....say Limited

Actual Physical progress

16. Whether audited Balance Sheet received from

the company?

17. Latest LIE report received and Name of the LIE.

18. Audit Objections, if any of other banks.

19. Planned / Revised COD

20. Comments / Observations

Submitted for information and record,

155 IPage
23 7
A India
Irafrautructune
Finance
...=.....

Comipany Limited
11FOL

24.5

Project Information

Takeout Finance - IIFCL

S. Particulars Comments
No
1. Name of the Project/SPV
2. Is there any concession agreement signed for
the project? If yes, then name of the
concessioning authority. (A copy of the same
to be attached)
3. If no concession agreement existing, whether
MoU with any government agency or PPA has
been signed and still valid? (A Copy of the
same to be attached)
4. PIM (Project Information Memo) circulated to
Banks at the time of first syndication for the
tying-up of the debt.
5. Scheduled COD Date (dd/mm/yyyy)
6. Actual COD Date (dd/mm/yyyy)
7. In case of delay in achieveing scheduled COD,
the reasons thereof.
8. Consortium Details. Name of Lead Bank. S. No. Bank/FI Amount 0/s as on
Allocated dd/mm/yy
y

9. Banks Reference/ Borrower Company's

Request.
10. Status of Account in the Books of the banks. Standard or Not?
11. Interest Rate as on dd/mm/yyyy
12. Reset Date, frequency of reset and mechanism
of reset.
13. Detailed Repayment schedule Date Amount
14. Project Cost Estimate at the time of first
sanction.
Final Achieved cost of the project.
15. If increase in project cost, reasons thereof.
16. Means of Finance (both originally envisaged
and final achieved)
17. Latest Audited Financials of the SPV. Copy to be attached.
18. Latest External Rating. Copy of same.
19. Terms & Conditions of sanction advice.
20. Current Status of Toll collections/Tariff being
charged.
21. In the event of non-submission of PIM,
Key Dates Sr Timelines
detailed Implementation Schedule may be Concession/MoU/PPA period (in years)
provided.
Construction period (in years)
Operational period (in years)
CA/MoU/PPA signing date (dd/mm/yyyy)
Scheduled Project completion date as per CA
(dd/mm/yyyy)

156IPage
 238
A India
Irawftstructur.
Fiavaca
Cazgap■rxv L:miced

Debt Drawdown start (dd/mm/yyyy)

Debt Repayment start (dd/mm/yyyy)
Debt Repayment end date (dd/mm/yyyy)
Moratorium (in years)
Repayment period (in years)
Door-to-door maturity (in years)
Concession/MoU/PPA End date (dd/mm/yyyy)

157 !Page
239

A1
11 F CL
11:141" tra.ccu cc
Fla-Lance
Corrspatrty 1-inlitcd

24.6
FORMAT OF THE PERIODIC ENVIRONMENTAL & SOCIAL REPORT

Project Information
Resource use
Air Emissions & Air Quality
Effluents and Liquid Discharge
and Water Quality
Noise Generation and Noise
Levels
Waste Generation and Disposal
Pollution Control Aspects
Review of Emergency
Management
2.1 Aspects
PROJECT STATUS
• Progress of the Project
• Alternations to Project Parameters and relevant clearances
• Communications with regulatory authorities
• Ex .anion Plans
COMPLIANCE WITH IIFC CONDITIONS
Provide a statement on compliance with IIFC's conditions on environmental aspects of
the project as may have been stipulated in the Loan agreement executed between IIFC
and the com fan .
RESOURCE PROFILE
• Fuel (quantity consumed, transportation risks)
• Water utilization
• Electricity
• Other resources utilized
(Quantitative information on resource consumption since last reported need to be
provided. In case of reporting for the first time, latest annual consumption figures may
be • rovided
ENVIRONMENTAL PROFILE
• Emissions from various sources
• Air Quality at Work Place
• Air Quality around the Project Site
• Compliance with regulatory requirements
• Effluent Quantity and quality
• Monitoring results of effluent and water quality
• Compliance with regulatory requirements
• Noise monitoring from Various Sources
• Noise monitoring at Work Place
• Noise around Project Site
• Compliance with regulatory requirements
• Waste Generation from various Sources
• Waste Disposal Methods
• Status of Disposal Site
• Performance of Pollution Control Equipment/ Systems
• Staff and Resources
• Plan testin.
SITE HEALTH AND SAFETY
• Accident and incident records
• Internal procedure for internal audits and summary of major findings
• Work area monitoring results for chemical agents as well as physical agents
noise, dust
SOCIAL ASPECTS
• New Development and Land Acquisition
• Public Consultation and community relations
• Current Status of Resettlement & Rehabilitation and Income Generation Activities,
if applicable
• Status of utilization of R&R budget
• Community Welfare Activities
• Details of any public protest/complaints/ litigation and how they have been
addressed or being addressed with present status.
• Details of any new developments around the project vicinity such as human

158IPage
 240
:=
;:ir" t eta..
Fimirvce
Company Limited
IIFCL

settlements, new industries etc.

SUMMARY OF COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
• Compliance with conditions of the Air and Water Consents and the
Environmental clearance as applicable
• Compliance with Factories Act and State factories rules
• Compliance with provisions of all applicable Health and Safety legislation
• Details of any notices or communication received from the State Pollution Control
Board/ Factories Ins. • torate & other re; lato bodies.
ENVIRONMENTAL MANAGEMENT
• Organization Structure
• Staff & Resources
• Achievements
• Environmental Training/Awareness Programmes
SUPPORTING DOCUMENTS PROVIDED

DOCUMENTS ENCLOSED
(YES/NO/N.A.)
1 Environment Monitoring Report, if available. Else lab reports supporting th e
environment and emissions data or information erovided in the FER
2 Copies of any updates/changes related to State/ Central environmental
clearances/consents alonl with the co . ies of the a lication made
..

3 Details of protests, lawsuits, strictures fines etc. against the project since inception of
the project issued either by courts, regulators, government or other bodies,
4 Records of any public consultation documentation as well as any complaints made by
the local communities
5 Resettlement & Rehabilitation Monitoring Report including status and impact of
income restoration activities
6 Any other documents of relevance

DELCARATION
DELCARATION BY THE PROJECT
We hereby declare that all the information provided and referred to in this PESR is authentic and that we have not
withheld any pertinent information pertaining to environment, health, safety and social matters of the project

Name & Designation of the Official

Signature

Date

159 IPage
241
A fik Indio
litft-setructura
Firsemee.
Comport,. Limited
IIFC

24.7
IIFCL/CP/ MNTLY/ FY/
Date:
To,

Sir,
Re: Monthly Report of IIFCL for the Month of

1. Credit Department:
Direct Lending

1.1. Since commencement of operations in April 2006, the company has received
proposals (including under PMDO) ---

of which eligible cases have been sanctioned. The remaining cases were declined as they did not conform to the
---

requirements under SIFTI.

1.2. During the month, the company received proposals requesting aggregate loan of --
-- crore and these are under
process. The Mode-wise details of proposals received are as under.

Mode No. of Projects Loan Requested (Z cr.)

PPP
Non-PPP
Total

Gross and Net Sanctions

1.3. At the end of , IIFCL's cumulative Gross sanctions stood at crore. The sector-wise details of Gross sanctions
---

are in Annex-I. The mode-wise details of Gross sanctions are as under:

Mode-wise details of Gross sanctions

ks.t.,rore)

Mode Cumulative as on 31st During During 20_ to Cumulative as on month_

March 20_ Month__ 2011 0 20_ 20
PPP
Non-PPP
PSU
PMDO
Total
a6 ",-, nn nners,i x,,,,1;...,. ,,.,,, 1...1-1 :.- 1 n — al_ f •■

The sector-wise details of Gross sanctions are as under:

Sector-wise details of Gross sanctions
kcLrure)

Mode Cumulative as on 31st During During Cumulative as on

March 20_ Month 20110 20— to 20_ Month_ 2011
Road

Power

160 IPage
 242

Alk
IIFC1,
tt" tructu
Firtarsce
CoxInpa..y 'Limited

Airport
Port
Urban Infrastructure
PMDO
Total
@since no Board meeting was held in Month ' Year
1.4 At the end of —, net sanctions of the company in — projects amounted to -- crore. The sector-wise details of net
sanctions are in Annex-I.
Mode-wise details of Net sanctions
(Z`Crore)
Mode Cumulative as on 31st During During 20— to Cumulative as on Month_
March 20_ Month 2011@ 20_ 2011
PPP
Non-PPP
PSU
PMDO
Total
@since no Board meeting was held in Month ' Year
The sector-wise details of Net sanctions are as under:
Sector-wise details of Net sanctions
(ZCrore)
Mode Cumulative as on 31st During During 20— Cumulative as on
March 20 _ Month 2011@ to 20 _ Month_ 2011
Road
Power
Airport
Port
Urban Infrastructure
PMDO
Total
@since no Board meeting was held in Month ' Year
Financial Closure

1.5 At end of ----, financial closure has taken place in --- cases with net sanction amount of ---- crore involving project
cost of ---- crore.

Disbursement

1.6 With further disbursement of --- crore during the month, the cumulative disbursement of the company as on
amounted to crore (excluding outstanding Letter of Comfort). With Refinance of ---crore provided to Power
Finance Corporation and Rural Electrification Corporation and Takeout Finance of ----crore provided to ----Road
project, total disbursements of the company amounted to ---crore (excl. LoC) compared to ----crore at the end of --
--, registering a y-o-y growth of ---%.
The mode-wise and sector-wise details are as under:
Mode-wise Disbursement
(ZCrore)
Mode Cumulative as on During During 20— Cumulative as on
31st March 20_ Month 2011@ to 20 _ Month_ 2011

161 'Page
 Afik .,:i--,
Firvanca
to..‘

Company Limited
IIFC I..

PPP
Non-PPP*
PSU
PMDO
Total Direct Lending*
Refinance
Takeout Finance
..
(

*Excludes balance commitment under Letter of Comfort

.. .. :1, _..
Sector-wise Disbursement
(ZCrore)
During
Mode Cumulative as on 31st During 20— Cumulative as on
Month
March 20_ to 20_ Month_ 2011
2011@
Road
Power*
Airport
Port
Urban Infrastructure
PMDO
Total Direct Lending
Refinance
Takeout Finance
---,--v---------------:— "-(7-7".---. —
1 i Willikrili3Ok, ,... . _
*Excludes balance commitment under Letter of Comfort

1.7 Under the Pooled Municipal Debt Obligations (PMDO) which is aimed at improving urban infrastructure, till end
September, ---crore have been sanctioned to projects involving a project cost of
--- crore. Out of IIFCL's----

commitment of -----crore in the facility, disbursement of crore has been made in cases till --

1.8 Site visits have been undertaken in --- projects out of --- projects where disbursements have been made.
Details of Site Visits
Cumulative as on 31st During Cumulative as on
March 2011 During Month_ 2011
20 to 20 Month_ 2011

2. Takeout Finance

2.1. During the month, IIFCL signed MoU with LIC and IDFC to provide takeout finance to banks and other eligible
lenders, in the presence of Hon'ble Finance Minister on ----. The key features of the MoU are:
i. Identified project Lender(s) will offer eligible infrastructure projects for availing takeout financing to IIFCL
in respect of mutually agreed accounts.
ii. Provide for takeout finance of 50% of Total Project Cost (TPC) by IIFCL, IDFC and LIC in the ratio of
20:20:10 instead of extant limit of 20% of TPC by IIFCL alone.
iii. Quadripartite Agreement to be entered into between the parties

With this MoU in place, Takeout Finance Scheme (Revised) of IIFCL will facilitate banks to take more exposure
in new projects, which in turn will help in bridging the gap in infrastructure financing.

162 IPage
 244
A lhb, Irmlift
111-a-rsatruc-tury
Firm.nee
Limited
Limit
IIFCL

2.2. Till --, the company has sanctioned ----crore for takeout in --- projects. Further modifications in the Scheme as
approved by Board of IIFCL in its meeting held on -- have been submitted to DFS for placing before the
Competent Authority for its approval. The company is in the process of appraisal of 18 proposals to be placed
for the approval of the Board, involving takeout amount of ----crore.

With regards,
Yours Sincerely,

163 !Page
24 5
1.die.
11-.1-rmusta-tacture
Finace.
IIFCL Comvmrsv Limited

ANNEX-I
24.8
INDIA INFRASTRUCTURE FINANCE COMPANY LIMITED (Standalone)
(Status as on —)
SECTOR-WISE GROSS SANCTIONS
crore
Sector No. of Projects Project Gross Sanctions
Cost
Road
Power
Airport
Port
Urban Infrastructure
PMDO
Total

SECTOR-WISE NET SANCTIONS

(Z crore)
Sector No. of Projects Project Cost Net Sanction
Road
Power
Airport
Port
Urban Infra
PMDO
Total
Net Sanction = Gros
closure has been achieved
SECTOR-WISE CUMULATIVE DISBURSEMENT
(Zcrore)
Sector No. of Projects Project Cost Amount
disbursed
Road
Power
Airport
Port
Urban infrastructure
PMDO
Sub Total
Refinance
Takeout Finance
Grand Total

MIS

Annexure 'A'
SECTOR WISE LOAN SANCTIONED BY IIFCL
(Z/ crore)
Sr Name Date . Gross Net Date of Loan PPP/N Ra Dis Res
Proj
Z= .t>(/)=

. of the Proj of Sancti Sancti First Docum on CO to bd. et

N Comp ect Sanct e ct
Cost ons ons Disburse ents PPP/Pu D of Till Cla
o. any ion by by ment Signed blic Int — use

164 'Page
 2 46
Iradi.
1. -ast.-ucturse

Alk Carnpftsw Limited

IIFCI-

IIFCL IIFCL Sector . 2011

ro
)
ROAD
1
Sub
Tota 0.00 0.00 0.00 0.00
I
AIRPORT
1
2
Sub
Tota 0.00 0.00 0.00 0.00
1
POWER
1 .

2
Sub-
0.00 0.00 0.00 0.00
Total
PORT
1
2
Sub-
Total 0.00 0.00 0.00 0.00
URBAN INFRASTRUCTURE
1
2
Sub-
Total 0.00 0.00 0.00 0.00
Total
(A) 0.00 0.00 0.00 0.00

165 !Page
247

AILIFCL
, -- truct.ra
:.-

Finaunce
Carragmarry Limited

PMDO Cases
Sr ULB SECT PROJE IIF IIF Date of Loan PPP/No CO Ra IIFCL Rese
N NAME/ OR CT CL CL First Docum n D to Disbur t
o. BORRO COST Sha Sha Disburse ents PPP/Pu of sed Clan
WER re re ment Signed blic Int se
Sector
(0/6
)

1
2
Total
0.00 0.00 0 0.00
(B)
Grand
Total 0.00 0.00 0.00 0.00
(A+B)

ANNEXURE 'B'
STATE WISE LOANS SANCTIONED/ ALLOCATED to IIFCL
-

(7/ crore)

Sl. Name of the Project Net IIFC Loan

Project Promoter Gross Sanction
No. Company Cost by IIFCL Sanction by as / of
IIFCL Project cost

1.NAME OF THE STATE

1
Sub-total 0.00 ' ' 0.00 0.00
2. NAME OF THE STATE
1
2
Sub-total 0.00 0.00 0.00
Grand Total

Annexure 'C'
PROMOTER WISE SANCTIONS
-

(Z/ crore)
SI. Name of Gross
the Project Sector Promoter Project Cost Net Sanction
No Sanction
Company IIFCL
by IIFCL
,,. i 1 ,.

TOTAL

166IPage
 248
Adik In:. tx,,c tsa .-.
Finance
Cc...p.m-L.,. I.: ro, :teed
I I F CL

1
2
3
TOTAL

Annexure 'D .
IIFCL share as %age of Total Project cost and Lead Bank share as %age of Total Debt
(Z/ crore)
Sr Name of Sector Appraised Project Total IIFCL's IIFCL's debt Lead Lead Bank's
no the by Cost Debt share in %age of total Bank share in total
Company total debt project cost debt

Annexure 'E'
SECTOR WISE PROJECT WISE AMOUNT DISBURSED
Project Name Sector State Proj. Cost Loan Allocated Amt. disbursed Mode
ROAD

TOTAL 0.00 0.00 0.00

POWER
1
TOTAL 0.00 0.00 0.00
PORT
1
TOTAL 0.00 0.00 0.00
AIRPORT

TOTAL 0.00 0.00 0.00

URBAN INFRA
1
TOTAL A 0 0.00

ArrItglt, - ,... Ala ,-.f i4 .

, : L . 0.00
PMDO

1
TOTAL B 0.00 0.00 0.00
0.00 0.00 0,00
TOTAL A+B

167 IPage
249

AL
Indio
Infrastructure
Fisuurtc-.
Comawsmy Limited
IIFCL

ANNEXURE 'F'
SITE VISIT BY IIFCL - STATUS AS ON Month 2011

Si.
o.
I Name of the
Company
Project
(7 in Crore)
Sector State Project Net Loan Site
Cost Sanction Documents Visited
by Signed on
IIFCL

168 IPage
 25(
India
Irdruseszetura
Finance
Cowssipmrav 1-irnit.ed
IIFC

24.9

MEMORANDUM TO THE BOARD

Item No :
Pre-COD/ Post-COD

PPP/ Public Sector/Non PPP

SUB: ANNUAL REVIEW UNDER TAKEOUT FINANCE SCHEME/ DIRECT LENDING: PROJECT
NAME

(All Figures in ! Crore unless

..7y,......m4 ln.alV/ vvlacy
Date of Sanction
Date of Last Annual Review
Sector
Lead Bank
Total Project Cost
Total Debt
Loan Sanctioned by IIFCL
Loan Sanctioned by Lead Bank

1. Borrower Profile:
Name of Company (SPV)
Promoter Grou
Shareholding Pattern Promoter % Share

Total 100%
Status of Equity brought in by the Promoters:
Particulars Required Brought in
Total

Equity in terms of CLA

2. Project Details:
Project Site Location
Project Description
Concession Authority/ MoU
Date of Signing Concession Agreement (CA)/ MoU
Concession Period / Project Term
Scheduled COD
Reasons for delay in COD viz a viz planned

Total cost of the project - Source of finance -

169 'Page

(7
251
A
,..,...

Infrastructure

F.
Ct-nr:ry Limited
IIFCL

(Z In Crore) (Z In Crore)
Particulars Particulars Amount
Amount

Total Total
Total Amount of Term Loan

Debt Allocation and Disbursements of various Banks and IIFCL

Bank/ Lender Allocated Amount % Share Disbursement % Share

Total

3. Rate of Interest
a. Rate of Interest at time of sanction with Reset Clause
b. Current Rate of Interest
c. Date of Last Reset
d. Date of Next Reset

4. Assessment with credit rating Earlier Present Upward/ Downward

5. Status of Revenue Collections Projected Performance Actual Performance %age

6. Debt Service Coverage Ratio (DSCR)

a. At the time of Sanction
b. At the time of Review
7. Compliances of Terms and Conditions
a. Whether Conditions precedent at this stage are Yes / No
Complied with
b. If Not, Status of Compliance

c. Documentation Complete / Not Completed

d. Date of Execution of Documents

8. Sanctions and Approvals

a. Whether all sanctions and approvals have been Yes / No

170 !Page
 25 4
India
Aidk
Infrastructure
Finance
IIFCI. Corupeny Lin
Limited

obtained

b. If not, Status of pending sanctions/approvals

9. Land Acquisition

a. Whether Land has been acquired fully Yes / No

b. If not, Status of Land Acquisition

10. Fuel Supply Linkages (where applicable)

a. Whether Fuel linkage has been completed Yes / No
b. If not, Status of Fuel Linkage
11. Remarks in Lenders Independent Engineer (LIE) Report
12. Date of Last Site Visit by IIFCL
13. IIFCL's comments on the overall performance of the
company/ project based on Site Visit Report/
Consortium Meeting / LIE Report
14. Whether Company is Regular in Servicing Dues Yes / No
15. Whether the Account has been Restructured Yes / No
16. If yes, Date of Restructuring

17. Status of Environment and social safeguards framework

(ESSF) Compliances

18. Last Date of Review by the Board

19. Due Date for Review by the Board
20. Present Status of Project

21. Comment on operation of the unit/ account

22. Outstanding issues, if any

23. Efforts put in by the borrower for resolution and

completion of the project
24. Department's justification/ recommendation

The note is placed for review of the account.

Chief General Manager

India Infrastructure Finance Company Limited

Dated:

171 'Page
253

Ak
India
Infrastructu re
Finace
Company Limited
IIFCI-

24.10
NBFC — IFC — Information Submission to RBI

Half yearly Statement of capital funds, risk assets / exposures and risk asset ration , etc. as
at end ofMarch / September 20..

Form NBS 2

PART F-

Asset Classification

I. Aggregate of credit exposures categorised into:

Item name Item code Amount

(i) Standard assets 411

(ii) Sub-standard assets :

(a) Lease and hire purchase assets 412

(b) Other credit facilities 413

(iii) Doubtful assets 414

(iv) Loss assets 415

Total (411 to 415) 410

Note: (item 410 should tally with CT200 )

II. Aggregate provisioning in respect of I above as per the Directions prescribed

Item Name Item code Provision Actual

required
provision
made

172IPage
 254
Irairs.tructur e
Firsamsco
I I F C L Cornpasw Limited

--------------------
(A)Loans, advances and other
credit facilities

(i) Sub-standard assets :

(a) entire amount taken to the 421

credit of profit and loss account
before the asset became NPA
and remaining unrealised
[Para 3(2) of the directions]

(b) 10% of the balance of

outstanding dues 422

(ii) Doubtful assets :

(a) entire amount taken to the 423

credit of profit and loss account
before the asset became NPA
and remaining unrealised
[Para 3(2) of the directions]
PART - H

Particulars regarding concentration of advances

including off balance sheet exposure and investments
to parties including those in Part G above

Item name Item Amount

Code

i) Loans and advances including off-balance

sheet exposures to any single party in
excess of 15 per cent of owned fund of
the NBFC.
(Details to be enclosed in Appendix No. ) 610

ii) Loans and advances including off-balance

sheet exposures to a single group of
parties in excess of 25 per cent of owned
fund of the NBFC.
(Details to be enclosed in Appendix No. 620

iii) Investments in a single company in

173 IPage
255
A dtik Indio
1..frastx-lucture
Firms-we
Cam v.arry I- ins: tccl
11FC7-

excess of 15 per cent of the owned fund

of the NBFC.
(Details to be enclosed in Appendix No. ) 630

Item name Item Amount

Code

iv) Investments in the shares issued by a

single group of companies in
excess of 25 per cent of the owned
fund of the NBFC 640

v) Loans, advances to (including debentures/

bonds and off-balance sheet exposures) and
investment in the shares of single party in excess
of 25 per cent of the owned fund of the NBFC 650

vi) Loans, advances to (including debentures/

bonds and off-balance sheet exposures)
and investment in the shares of single group
of parties in excess of 40 per cent
of the owned fund of the NBFC 660

Notes :

(1) All these exposure limits are applicable to the NBFC's own group as well as to the borrower/investee
company's group.
_
Actual
Provision
Item Name Item code provision
required
,..
made
100%
100% t o thee en not covered by
realisable value of security plus 20 to
50% of the secured portion for the period 424
the asset has remained doubtful
(iii) Loss assets
:

(a) entire amount taken to the credit of

profit and loss account before the
asset became NPA and remaining 425
unrealised [Para 3(2) of the
directions]
(b) 100 % of the outstanding balance 426
Total: (item No.421 to 426) ST426

174 IPage
 25b
Infraatructvve
Firas.c.
Comsssrs.y Limited
11F01-

24.11

NBFC — IFC — Information Submission to RBI

Annual Statement of capital funds, risk assets / exposures and risk asset ration , etc. as at
end of

March 20..

Form NBS 7

PART- F

Asset Classification

I. Aggregate of credit exposures categorised into:

Item name Item code Amount

(i) Standard assets 411

(ii) Sub-standard assets :

(a) Lease and hire purchase assets 412

(b) Other credit facilities 413

(iii) Doubtful assets 414

(iv) Loss assets 415

Total (411 to 415) 410

Note: (item 410 should tally with CT200 )

II. Aggregate provisioning in respect of I above as per the Directions prescribed

Item Name Item code Provision Actual

required provision
made

(A)Loans, advances and other

credit facilities

175 'Page
257
India
Infreatrnc

Ak Fi nance
Corr.p.ny Limited

(i) Sub-standard assets :

(a) entire interest amount taken to the 421

credit of profit and loss account
before the asset became NPA
and remaining unrealised

(b) 10% of the balance of

outstanding dues 422

(ii) Doubtful assets :

(a) entire interest amount taken to the 423

credit of profit and loss account
before the asset became NPA
and remaining unrealised

Actual
Provision
Item Name Item code provision
required
made

(b) 100% to the extent not covered by

realisable value of security plus 20% to 50%
of the secured portion for the period the 424
asset has remained doubtful

(iii) Loss assets :

(a) entire interest amount taken to the

credit of profit and loss account before
the asset became NPA and remaining 425
unrealised

(b) 100 % of the outstanding balance

426

Total: (item No.421 to 426)

ST426

176 'Page
 '‘,58
Ark. India
Infrant,aactua,e.
Finance

11FCI.

PART - H
Particulars regarding concentration of advances including off balance sheet exposure and investments to
parties including those in Part G above

Item name Item Amount

Code

i) Loans and advances including off-balance

sheet exposures to any single party in
excess of 15 per cent of owned fund of
the non-banking financial company
(Details to be enclosed in Appendix No.) 610

ii) Loans and advances including off-balance

sheet exposures to a single group of
parties in excess of 25 per cent of owned
fund of the non-banking financial company
(Details to be enclosed in Appendix No.) 620

iii) Investments in a single company in

excess of 15 per cent of the owned fund
of the non-banking financial company
(Details to be enclosed in Appendix No.) 630

iv) Investments in the shares issued by a

single group of companies in
excess of 25 per cent of the owned
fund of the non-banking financial company 640

v) Loans, advances to (including debentures/

bonds and off-balance sheet exposures) and
investment in the shares of single party in excess
of 25 per cent of the owned fund of the
non-banking financial company 650

vi) Loans, advances to (including debentures/

bonds and off-balance sheet exposures)
and investment in the shares of single group
of parties in excess of 40 per cent
of the owned fund of the

177 I Page
259
rndlo
Infrasts-uchtare
Firtmcnce
A: Consivorry Limited
I1FCL

non-banking financial company 660

Notes :
(1) All these exposure limits shall be applicable to the non-banking financial company's own group as well
as to the borrower/investee company's group.
(2) Investment in debentures for this purpose shall be treated as credit and not investment.

178IPage