This will be the first instance of an infrastructure project in India being backed by perpetual loans.
Under an arrangement, the two consortia - led by GMR and GVK - which have been awarded the contracts for modernising the Delhi and Mumbai airports, respectively, will not be required to service the principal amount of part of the debt to be raised for the projects.
They will service only the interest cost. If the experiment succeeds, the innovative model is expected to be used for other infrastructure projects as well.
The structure is being worked out in view of the limited debt servicing capability of the two projects. This is because both the projects will share revenue with the government.
For the Delhi airport, the GMR-Fraport consortium will share 46 per cent revenue with the government. The GVK-South African consortium will offer the government 38.70 per cent of revenue to be generated by the Mumbai airport.
"The revenue-share arrangement will restrict the promoters' debt servicing capability. The debt in perpetuity arrangement will stand them in good stead as they will be spared from servicing the principal part of the debt, thereby reducing the cash outgo," said a banker.
But the promoters will have the option of pre-paying the principal portion as and when they are comfortable with revenue generation.
"The other alternative could have been issuance of long-term preference capital to financial institutions. However, under the Company Law, there cannot be irredeemable preference capital. This means, either they have to be redeemed or be converted into equity shares. Since the promoters are not willing to offer the conversion option to lenders, a perpetual loan structure is being worked out," said the banker.
Loan in perpetuity will be part of the tier II capital of the airport projects.
In case of preference shares, lenders get dividend. On perpetual loans, they will earn interest - about 1.5-2 per centage points higher than they earn from a normal project loan.
At any given point of time, a new set of lenders can walk in replacing the original consortium for the perpetual loan.
"The comfort for lenders is the nature of the underlying security. Like the Euro Tunnel, the life of collateral for the airports will be very long. The lenders will have no discomfort in taking perpetual exposure for such projects," said another banker.
