Double Leveraging in Infrastructure Sector

Adani Institute of Infrastructure Management

Overview

Indias substantial infrastructure requirements driven by PPP Many developers are implementing projects through project-specific SPVs Generally, SPVs of a group are housed either in a single holding company (HoldCo) or in several sector-specific HoldCos.

Challenge is to raise funds to meet equity commitments towards their infrastructure assets.

Many of the developers are raising funds at the HoldCo level (routed in the form of equity to the SPVs).
The funds in HoldCos are raised by Direct equity infusion by the promoters Private equity funds Debts The concept of double leverage gains importance in the context of raising debt funds by HoldCos to fund equity investments in the SPVs. Funding of equity in projects SPVs by raising debt at HoldCo level resulting in high overall leverage.

Main Promoters 60% Ultimate Parent Company (UPC) Also the project contractor/operator 100% Holding Company (HoldCo) 100% 100% 100%

Other Investors

40%

100%

SPV1

SPV2

SPV3

SPV4

HOLD CO D= 125

SPV D= 75

E= 12.5 + 12.5 E= 125 =25

HOLD CO D= 150

SPV D= 75

E= 100

E= 10 + 15 =25

Effective Gearing Ratio= (75+15)/10=9

Part-funding of equity contribution through EPC profits

HOLD CO Profit= 12 D= 125

SPV D= 75

E= 6.5 + 6.5 + 12 E= 125 =25

Effective Gearing Ratio= (75+6.5)/6.5=12.54

Receivable Securitization in an Infrastructure Project

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