Column : Lipstick on a pig

Dec 18 2012, 01:15 IST
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SummaryNo one is going to lend to new investments if the existing ones remain in the kind of trouble they are in today.

Now that the National Investment Board/Cabinet Committee on Investments (NIB/CCI) has been cleared by the Cabinet, chances are the focus over the next few weeks, indeed months, will be on the projects taken up by it and how it has been able to, or not been able to, kickstart India’s badly stalled investment process. Will Posco come to the CCI or won’t it given how, at environment minister Jayanthi Natarajan’s insistence, the CCI has no appellate powers? And what about Vedanta…

Much of this, however, seems to be missing the wood for the trees. Going by the finance ministry’s statements, India has around R1.3 lakh crore of projects that are stuck due to some clearance not coming through. So now that the CCI has come through, the argument goes, these projects will soon get cleared. It’s true that many banks don’t have the headroom to lend much more to infrastructure projects, but that has been resolved by pushing through the concept of Infrastructure Debt Fund (IDF)—so once SBI, say, sells its loans in, say DIAL, to IDFC’s IDF, this will create more space for SBI to be able to lend again. That’s the logic: wherever there are obvious gaps/problems, a diligent government is finding solutions.

That’s obviously the way to go, but it’s important to keep in mind this may be barking up the wrong tree. For one, getting banks to hawk their better-performing infrastructure loans to IDFs may actually make their books look shakier.

Two, consider a new telco that bids R12,000 crore, say, for a pan-Indian 2G licence (that’s roughly the base price today). Will a bank, any bank, be willing to lend R15,000 crore or so to fund the telco’s licence and capex when it knows the market leader Bharti Airtel has been seeing pretty disappointing results for several quarters now and when it is up to its neck in debt with a debt-ebitda of an uncomfortable 2.8 times projected for FY13? More so when it knows the government’s new policy of a high one-time entry fee combined with a high annual spectrum/licence fee makes (http://goo.gl/C6zTA) the business totally unviable.

Or take a power project looking for financing. Given the sector’s annual losses have more than quadrupled over the last 5 years to R80,000 crore in FY12, and no clarity on whether SEBs will be able to pay for the power even after the loan restructuring just announced, which bank will

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