India: Tamil Nadu Urban Development Fund TNUDF

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India Tamil Nadu Urban Development Fund (TNUDF)

• Municipal Financing for Environmental
  Infrastructure Study Tour for Chinese Delegation
• Hiroaki Suzuki
• World Bank
• July 31, 2003

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Presentation

• Urban Sector in Tamil Nadu State, India
• Tamil Nadu Urban Development Fund (TNUDF)
• TNUDF Bond Issue
• Pool Financing for Water Sector
• Madurai Ring Road Revenue Bond
• Lessons Learned and Conclusions

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TNUDF RESTRUCTURING
Loan
GOI
Bank
Loan/Grant
Capital Market
GOTN
MUDF
Grant
Bond
Loan
Assets/Liabilities (Net-Worth as Govts Equity)
FIs ICICIHDFCILFS
GRANT FUND
TNUDF
Equity
Dividends
Dividends Plow Back
TNUIFS Fund Manager
Grant
Loan
Loan Co-Financing
BOT
Private Sector Investments
Poverty Alleviation Project
Municipal Projects
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TNUDF Result 99-01

• 174 projects (US203 m cost US94m)
• 840 ULB
• Bridges, Transport, Water Supply, Solid Waste
  Mgt. Etc

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Performance of TNUDF
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TNUDF Bond Issue

• One of the project objectives is to secure
  sustainable funding sources for the urban
  infrastructure investment beyond the Banks line
  of credit operations.
• TNUDP II Loan Covenant requires TNUDF to raise
  US50 millions from the private sources (bond and
  co-financing with FIs)

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TNUDF Bond Issue Nov.2000

• Size of the issue Rs. 100 Crores(US23
  M)Private Placement
• Instrument Non-Convertible Tenor 5
  yearsCoupon Rate11.85Payment of
  Interest Half YearlyRedemption In five equal
  annual installmentsPut/Call Option None Rating
  LAA(so) by ICRA AA (high safety and modest
  risk)

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POOLED FINANCING APPROACH
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Terms of the Bond 35 Crores, 9.2
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List of Participating ULBs
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Madurai Bypass - Linking Highways and People
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Madurai Bypass Road Innovative Financing

• First Toll Road in Tamil Nadu State
• TNUDF provided loan to Madurai Corporation
• After the project construction and
  materialization of toll revenues, Madurai
  Corporation issued bond15 years with an interest
  rate of 12.25 payable semi annual.
• This bond was used to replace the debt of TNUDF
  loan which carries an interest rate of 15.5 p.a
  with 15 years repayment period.
• Madurai could reduce loan costs
• TNUDF could re-deploy the resources for other
  projects.

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Madurai Bypass - Completed on 31.10.2000
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Lessons Learned Conclusion (1)

• Comprehensive approach is needed.- sector
  reforms (decentralization, revenue generation for
  municipalities for ULBs)- capacity building of
  ULBs (accounting, project mgt) - independent
  autonomous financial intermediary run by private
  professional fund manager, which takes equity
  stake.
• Division of WorkGovernment (policy and
  regulations) and Private Financial Institutions
  (appraisal, supervision, portfolio mgt).

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TNUDP
Capital Market
Urban Sector Reforms (Decentralization)
GOTN
FIs
GF
ISP (toilet)
Id id DDDDD
TNUDF
ID
Dividend
Project Identification
Loan
CCP (CDS)
Capital Grant
TA
NGOs
CBOs
Project Preparation
Capacity Building
Urban Investment
Poverty Alleviation
MUNICIPALITIES (PRIVATE INVESTORS)
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Lessons Learned Conclusion (2)

• Integration with the Financial Sector-
  separation of grant and finance- gradually align
  interest rates with the market determined rates
• Bottom Line is important (strong municipal
  financial position, sound project, good
  implementation, high loan recovery rate, strong
  financial performance of the Financial
  Intermediary

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Lessons Learned Conclusion (3)

• Important role of the specialized financial
  intermediary as market developer-innovator to
  induce private investments (such as Madurai Ring
  Road financing scheme).
• Dis-intermediation for larger municipalities-munic
  ipal bond