Three key functions for the intermediary that can help mobilize local finance include: origination, liquidity and refinancing.
Origination: Intermediaries originating infrastructure finance will assess a project, influence its design and structure, and then build a book of debt either alone, with a club of other lenders, and/or through syndication.
Liquidity: Long tenor funds can be made available to those financiers or as co-financing (senior or subordinated) to the project. Other instruments, like takeout guarantees can be used to extend tenors of debt.
| Box 6.5: Tamil Nadu Urban Development Fund (TNUDF) |
| TNUDF was created as a trust fund with private equity participation and without state guarantees, the first such structure in India. Its paid-in capital combined with debt raised from a World Bank loan allowed TNUDF to issue the first non-guaranteed, unsecured bond issue by a financial intermediary in India, in 2000. The issue received a LAA+ rating from ICRA due to credit enhancement and structured payment mechanism, low gearing and strong repayment record. The proceeds from bonds are deposited in the fund, and subsequently lent back to the participating local bodies as sub-loans to finance their infrastructure projects. |
Refinancing: Liquidity constraints, risk ratios, single borrower limits and other prudential requirements can constrain the amount of support that local financiers can provide to infrastructure markets. Refinancing involves the pre-payment of part or all of a project's debt by borrowing from a new lender (possibly at a lower interest rate, longer tenor or on easier terms).