Bangalore Metro finds raising low-cost capital challenging

Written by Ajay Sukumaran | P P Thimmaya | Updated: Nov 8 2013, 11:25am hrs
Bangalore Metro Rail Corporation (BMRCL), which has embarked on the second phase of the network with a projected cost of around R26,400 crore, is exploring ways to retire the high-cost debt it had taken for the first phase by floating bonds before the end of fiscal to the tune of R400-500 crore, report Ajay Sukumaran & PP Thimmaya in Bangalore. The first phase of Bangalore Metro spanning 42 km, with a total cost of R11,600 crore, is under construction and is expected to be completed by the middle of 2015. We want long-term debt, which is difficult at lower interest rates; so, we have to explore other options, BMRCL MD PS Kharola told FE. The first phase of Bangalore Metro has a debt component of R3,671 crore from financial institutions such as Japan International Cooperation Agency (JICA), Korea Exim Bank, Asian Development Bank, State Bank of India and Housing Development Corporation of India (Hudco). The second phase spanning 72 km will receive equity and interest-free funds from both the state and Centre, adding up to 54% of the total investment, with the rest to be raised as debt from financial institutions. Kharola said BMRCL is looking at various options, including viability gap funding. Capital-intensive infrastructure projects such as Bangalore Metro rely heavily on long-term debt framework to launch and sustain operations.

The second phase connecting Bangalores IT hubs to the city centre and adding two new lines is in the final stages of getting central government approval.

BMRCL is still working on the first phase of the 42-km network at a cost of Rs 11,600 crore, of which around 7 km is operational. It hopes to complete the entire stretch by early 2015 and is hopeful of reaching a ridership of 5 lakh passengers per day.

We want to break even on capital cost. It looks possible if we cross 5 lakh passengers per day, said Kharola. The first 7 km-stretch, which started functioning two years ago, is currently covering running costs with a daily ridership of over 20,000 passengers, he added.

Much of BMRCLs ongoing project, which is South Indias first operational metro service, is still under construction but it is expecting its big breakthrough in the next 12 months by when underground tunnelling will be complete.

BMRCL is also looking at the option of issuing bonds to replace higher cost debt while also exploring the possibility of a share from the civic authoritys monetisation of higher floor area ratio (FAR) around the metro stations. The FAR, which is the ratio of a buildings total floor area to the size of the plot, was enhanced to 4 to encourage development around Bangalore Metro stations.

The Karnataka government and the Centre have contributed 55% of the funding, which includes interest-free funds for the Metros first phase of 42 km comprising two criss-crossing lines, while the remaining has been financed through long-term debt from lenders such as the Japan International Cooperation Agency (JICA), Korea Exim Bank, Asian Development Bank, State Bank of India and Housing Development Corporation of India (Hudco).

This year, BMRCL will start commercial operations on a second 10 km northern line running from the citys industrial estate of Peenya to the upmarket Malleshwaram residential locality which will be followed by an extension in four months time. By the middle of next year, the East-West corridor would be through. That will be a big breakthrough. By October 2014, the entire tunnelling will be over, said Kharola.

BMRCL has also started the initial work into conceptualising Phase 3 of over 100 km which would be in concentric circles.