Tamilnadu Urban Development Fund TNUDF

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Tamilnadu Urban Development Fund (TNUDF)

• A Presentation
• January 2003

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Scheme of Presentation

• Introduction
• Purpose of the fund
• Objectives
• Eligible borrowers / sectors
• Lending policies and procedures
• Project Prototypes

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Introduction

• A Trust established under the Indian Trusts Act,
  1882, by GoTN, ICICI, HDFC and ILFS with a line
  of credit from the World Bank

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Purpose of the Fund

• TNUDF is a trust fund engaged in the development
  of urban infrastructure in the state of
  Tamilnadu. This trust was created as part of a
  restructuring exercise of an existing World Bank
  credit to the Government of Tamilnadu (GoTN) in
  September 1996.
• Under the World Bank credit of Rs.167 crores, the
  Municipal Urban Development Fund (MUDF) was set
  up in 1988 to fund urban infrastructure needs.
  The fund has been in existence for 8 years and
  had extended loans of about Rs.200 crores to 74
  Urban Local Bodies (ULBs) upto September 30, 1996.

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Purpose of the Fund

• Successful track record enabled GoTN to broaden
  the scope of the fund so as to attract private
  capital into urban infrastructure, and facilitate
  better performing ULBs to access capital markets.
• In 1996, GoTN, with the assistance of World Bank,
  invited three financial institutions namely,
  ICICI, HDFC and ILFS to convert MUDF into a full
  fledged trust, namely TNUDF with a private fund
  manager to deploy the resources of the trust.
• Accordingly, TNUDF was established as a trust
  under the Indian Trusts Act 1882, and is managed
  by an Asset Management Company, Tamilnadu Urban
  Infrastructure Financial Services Limited
  (TNUIFSL)

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Fund Objectives

• Fund urban infrastructure projects which improve
  the living standards of the urban population
• Facilitate private sector participation in
  infrastructure through joint venture and
  public-private partnerships
• Operate a complementary window, the GRANT FUND,
  to assist in addressing the problems of the urban
  poor.

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Eligible borrowers / sectors

• Urban Local Bodies (ULBs), statutory boards,
  public sector undertakings and private corporates
  are the eligible borrowers of the Fund.
• The eligible sectors include water supply,
  sanitation, solid waste management, roads /
  bridges, transportation, sites and services and
  integrated area development

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Lending policies procedures

• Eligible items for TNUDF funding
• Only for capital expenditure
• Civil works
• Services
• Goods / Materials
• TNUDF will not fund
• Land acquisition costs
• OM expenditure / other revenue expenditure such
  as salaries etc.

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Eligibility Criteria

• For ULBs etc.
• TE / TR lt 1
• Annuity / Total revenue lt 30
• In case where ULBs fail to meet above criteria,
  the project specific returns (IRR) should be
  greater than 18.5 p.a.
• For private sector borrowers
• Long term debt lt 1.5
• Net worth
• Net fixed assets gt 1.5
• Long term debt
• Average DSCR gt 1.5

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Security Measures

• Special recovery mechanism such as escrow
  accounts of property tax, water charges etc. and
  hypothecation of movables are being put in place.
• In case of commercial complexes,default option of
  conversion of upto 40 of loans outstanding into
  office space is being stipulated.

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TNUDF Experience - Project Proto types

• Commercial and Non-commercial
• Three fold categorisation indicates on the demand
  side certain types of urban infrastructure such
  as toll bridges, markets and bye-passes can be
  supported by reliance on project cash flows to
  service debt.
• Projects such as stand alone commercial complexes
  and office space which rarely recover debt
  service from rentals are not worth investing in
  and do not constitute infrastructure in any real
  sense.
• Second, environmental infrastructure namely water
  supply, sanitation and solid waste need a mixture
  of debt and grant financing and should attempt to
  recover appropriate user charges.
• Third, other municipal infrastructure such as
  internal roads, parks, crematoriums etc would
  have to rely solely on general revenues to
  service debt.

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TNUDF Experience - Commercial

• KARUR BRIDGE
• Based on these principles, TNUDF has facilitated
  the first BOT / Toll bridge, contracted by an ULB
  in India at an estimated cost of Rs.16 crores.
• The users of the bridge are freight traffic with
  the capacity to pay. As the bridge would
  substantially reduce vehicle operation costs
  (VOC) and time, cash flows to the operator is
  expected to be predictable.
• The enabling provisions of Tamilnadu State Toll
  Act has been amended allowing ULBs to enter into
  BOT style operation, thus offering the investor a
  stable regulatory framework.

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Toll Fixation Criteria

• The tolls are as follows
• Vehicle Type Single Multiple Monthly
• Pass (Rs.) Pass (Rs.) Pass(Rs.)
• Car/Jeep/Van 10 15 300
• LCV, Tractors 25 35 1050
• Trucks 30 45 1350
• Bus 30 60 1800
• Multi-axle trucks, Cranes,
• Earth-moving machines 50 -- --
• similar heavy vehicles

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KARUR BRIDGE
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TNUDF Experience - Commercial

• MADURAI BYE PASS
• Madurai the second largest city in Tamilnadu, is
  a Corporation with an area of 51.82 sq.kms and a
  population of 9.4 lacs (1991 census). It is a
  major commercial and religious centre in the
  Southern region, linking important trade and
  tourist flows within Tamilnadu.
• The scheme is the construction of a 2 lane
  Inner Ring Road (IRR) of 27.2 kms between
  Kanyakumari Road and Melur Road for which land
  acquisition has been completed. The IRR would
  also include construction of 2 Railway Over
  Bridges (ROB), one each at Ramnad road and
  Tirunelveli road, and a high level bridge across
  the Vaigai River.

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TNUDF Experience - Commercial
MADURAI BYE PASS Madurai replaced its traditional
borrowings in the form of long term loan by its
own debt paper. Madurai is the first municipal
corporation in Tamil Nadu, which has issued
debentures for its project refinancing viz., the
Inner Ring Road. The servicing of the bonds
would be met out of the toll collections arising
out of the traffic on the road. This issue
resulted in a flat cost saving of about 2.50 to
3.00 percentage points to the corporation.
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Madurai Toll Collection
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TNUDF Experience Commercial - Madurai Bye pass
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TNUDF Experience Loan Grant Blending - Storm
Water Drain in Valasaravakkam
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TNUDF Experience - Commercial

• SOLID WASTE MANAGEMENT CONTRACTS
• Conversion of Municipal Solid Waste into Organic
  Manure (50 tpd plant)
• Supply of pay contract between ULB and Private
  Sector operator at Rs.3.50 pt lease rentals
• Pressure / Incentive for the ULB to keep the
  streets clean.

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TNUDF Experience Public - Private Partnerships

• ALANDUR MODEL
• 15,000 Households out of 17,000 have contributed
  Rs.5000/- per household representing one third of
  Project Cost of Rs.34 crores.
• Initial tariff in Alandur fixed at Rs.150 per
  house per month.
• Private Participation in that the private sector
  has invested equity in the STP.

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TNUDF Experience Public - Private Partnerships
ALANDUR MODEL
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Vision

• TNUDF would position itself as a strategic
  intermediary linking capital markets with Urban
  Infrastructure needs.
• Positive performance during the plan period,
  achievement of lending targets, high repayment
  rates and quality infrastructure would
  demonstrate a track record enabling market access
  for the Fund.
• Capacity building activities, financially
  disciplined ULBs and strong project pipeline are
  enabling factors. Preparation includes rating of
  TNUDF risk assessment of ULBs, setting up a
  credit enhances, revenue intercepts etc.

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Resources
1) As a part of its vision raising exercise,
TNUDF raised Rs.110.05 crores from the capital
market during September - November 2000, by way
of issue of unsecured non convertible debentures
of Rs.1,00,000/- each. This is the first
non-guaranteed, unsecured bond issue by a
financial intermediary in India, with urban
municipal cash flow as its base. 2) The terms of
the issue are as follows
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Way Forward - Water Sanitation Fund

• Urban Infrastructure, especially water and
  sanitation investments require long term debt on
  account of externalities over time and space,
  severe fiscal constraints on the supply of equity
  from State and local Governments for new
  investments and substantial low income population
  constraining the ability to pay for high
  financing costs.
• Consequently, the need to link city
  infrastructure financing requirements with
  domestic capital markets is well understood.
• Debt finance is a pre-requisite for undertaking
  essential civic investments, and in the long run,
  domestic savings through capital markets would
  have to be, predominant source of supply.
• The need for an institutionalised mechanism to
  raise low cost funds for water and sanitation is
  clear cut with the US Bond Bank as a potential
  model.

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WAY FORWARD Linking Markets Cities with
Intended Use Plans

• Creation of a revolving fund by GoI - States
• Tax concessions for municipal bonds by GoI
• Structure a statutory framework to manage the
  fund
• Borrowing eligibility criteria to be established
• Project implementation procedures including
  rational quick procurement
• Framework for tariff setting - through a
  democratic process
• Fixation of rational levels of upfront
  contribution by the community / local body
• Capacity building for the raters/Merchant Bankers

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Resources Water and Sanitation Pooled Fund

• A Pooled entity namely, a Trust called Water and
  Sanitation Pooled Fund (WSPF) has been
  registered.
• The initial contribution of the trust is
  Rs.10,000/-
• Objective is to link civic financing needs with
  the capital market

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Resources Water and Sanitation Pooled Fund
The terms of the issue are as follows
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Resources Water and Sanitation Pooled Fund
The subscribers include Banks and Provident Fund
Trust. The sectorwise subscription of the bonds
is as follows
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Resources Water and Sanitation Pooled Fund
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TNUDF - Institutional Positioning