Listing project bonds as one of the most lucrative sources of raising funds from the international finance markets, bankers have indicated that India can raise funds to the tune of $2.5 billion by 1999-2002 in the project bond market for financing its power projects.

In one of the recent presentation to the power ministry on the "international project finance sources along with the concerns of the international lending community", by the leading US bank, ANZ Investment Bank, it has been pointed out that there is enormous potential for the Indian power projects to raise funding through the international project bonds market.

However, it was also pointed out that in order to fully tap this potential, the government will have to look into the concerns being raised by the international institutional investors which relatedto speedy implementation of projects along with fast policy decisions in the power sector.

The international project bond market, as per the presentation, has already started to mature in the last two years as can be seen from the fact that US institutional investors had put in funds to the tune of $4.5 billion in 1996 and $5 billion in 1997.

By the year 2002, India can raise around $4 billion for power projects alone by way of issuance of projects bonds, says the ANZ's presentation.

Power ministry officials said that institutional investors in the US are very keen to invest in the country's power sector and for this it has been suggested that promotional investor roadshows should be conducted in the US markets to educate the investors on the Indian power sector.

These roadshows should be conducted both by the ministry as well as the private sector developers wherein they can address the concerns and doubts of the international institutional investors.

To start with, ANZ Investment Bank hassuggested six potential cities to the ministry which includes New York, Chicago, Washington, Boston, San Francisco and Los Angeles, for the issuance of project bonds.

Whereas, the Asian crisis had restricted project bond issuance in the fourth quarter of 1997 and in the first quarter of 1998, ANZ is very optimistic that the market will return to being a strong source of funding during the second half in 1998.

Officials said that a host of significant factors like development of a separate asset class for project bonds amongst the investors, dedicated teams being set up by many top investors for project bonds, defensive nature of the "ring fenced" projects along with ideal emerging market investments, all support the optimism for a promising project bond market which will strengthen during 1998 despite the Asian crisis.

Moreover, during 1997, project bonds have out-performed corporate paper and it is estimated that in the US the market of project bonds will be somewhere around plus $10 billion perannum.

The key concerns of the international investors include poor track record of power project implementation in India, lack of clarity in policy directions/implementation, intrinsic issues in state specific initiatives along with the deteriorating credit standings of the state electricity boards (SEBs).