Can KIIFB ‘walk the talk’ on funding?

600 projects worth Rs46,000 cr announced

THIRUVANANTHAPURAM: While the Kerala Infrastructure Investment Fund Board (KIIFB) continues to display its unflinching confidence about fulfilling the dream of readying a Kerala with a solid infrastructure soon, a large section, not necessarily the Opposition alone, is slowly growing nervous about the financing prospects of the long projects line-up.

Close to 600 projects estimated to cost about Rs46,000 crore have already been announced leaving a moot question whether KIIFB has the stomach to drum up this sort of a huge fund in the next three or four years even as a determined finance minister Dr Thomas Isaac is cool about it.

The annual report of KIIFB for 2018-19 shows that it could raise loans from banks and financial institutions (FIs) at prices lower than it paid for its storied masala bond in March that attracted a coupon of 9.723 per cent.

The notes to financials show that KIIFB could strike loan deals worth Rs2565 crore from State Bank of India (SBI), Union Bank, Indian Bank and Nabard at interest rates ranging from 8.75 per cent to 9.5 per cent.

Talking to, former treasury head of a Trichur based bank said, “This shows that KIIFB could not raise as much loans it needs from the banks. If they did, they would have gone for more loans rather than going for a masala bond in March that charged relatively high and made the KIIFB team run around a lot.”

However, it remains a fact that KIIFB has not availed the whole loan amount as the borrowings from banks and FIs stood at about Rs950 crore as of March 31, 2018 – a far cry from the sanctioned amount.

As everyone knows, though the masala bond size was Rs5000 crore, KIIFB raised only less than half of that, maybe because it had decided to wait for a favourable market as the KIIFB top brass may argue. Moreover, KIIFB had to call off a Rs3500 crore debenture (Rs1500 plus Rs2000 crore green shoe option) issue more than a year back as investors demanded higher price even close to 10 per cent, and this has necessitated the Board to withdraw the rating on that instrument.

KIIFB’s anchor funding has been weaved around the motor vehicle tax (MVT), petroleum cess and the Government’s budget support, which together stood at about Rs6000 crore during FY19.

Dr Thomas Isaac, the finance minister as well as the chairman of KIIFB executive committee, has time and again projected MVT to be a big support in funding and its share has been designed to grow incrementally by 10 per cent annually until it reaches 50 per cent in five years. He also foresees an annual growth of about 15 per cent in MVT and petroleum cess revenue going forward.

The expectation here also may be belied as the MVT collection is bound to hit the skids due to the sharp fall in automobile sales countrywide for the past couple of months – which is set to continue for a while more.

Auto dealers in Kerala vouch that vehicle sale in the state is unlikely to grow in the near future as on the one hand, the number has reached a saturation point and on the other, people have started showing increased affinity for public transport and the youth increasingly prefer taxi aggregators.

The same trend holds good for petroleum sales in the future, more certainly after, say five years by which time electric vehicles (EVs) will have stolen the show as the studies claim.

While the Pravasi chitti has indeed dashed the hopes of helping build the kitty, with the fund raised through KIIFB security bonds and deposit bonds stood at just Rs53.50 crore as of September end.

Though KIIFB had plans to launch different bonds in the market including in the overseas, it has to keep its fingers crossed until the market conditions stabilise. The state’s credit rating below investment grade (BB) is certainly a deterrent to raising low cost funds from international market.

KIIFB is also facing certain other issues related to transparency in the home turf and this according to experts would not bode well for a body corporate like KIIFB as there genuinely remain certain issues, which KIIFB can’t turn its back to.

As gathers, KIIFB has not yet disclosed the names of the investors in the Rs2150 crore masala bond issue even after the passage of six months.

People are keen to know what ways KIIFB would be raising funds in the future. Dr Isaac had in the past been audacious to announce that KIIFB would raise funds from overseas (in dollar) markets at rates as low as 1 to 3 per cent.

Many believe that borrowing from banks could have been more suitable for KIIFB but the banks have to play by the book. While loans from Nabard are at Rs200.8 crore, SBI’s exposure to KIIFB is at Rs300 crore and that of Union Bank is at Rs250 crore, whereas Indian Bank has extended a loan of Rs200 crore during FY19. All these loans have tenures not less than 12 years including moratorium.

The financials for 2018-19 show that the masala bond issue incurred an expense of Rs11 crore. While the finance cost for KIIFB during the said period was Rs40.74 crore, the guarantee fee KIIFB had to shell out was to the tune of Rs23.30 crore, whereas the consultancy bill was Rs16.96 crore during FY19.

KIIFB had Rs9114 crore raised over the past couple of years, An amount of Rs7215 crore has been parked with treasury and as deposits with different financial institutions as of March end, 2019





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