Mumbai: Participation of central and state governments in undertaking new infrastructure projects is boosting confidence among private sector players to issue corporate bonds, India Ratings has said.
The issue of corporate bonds by public sector infrastructure companies has also evoked a positive response from the market and more players are likely to follow suit, the rating agency said.
"These bonds facilitate infrastructure developers to raise funds at a lower cost than bank financing. Equity participation by the central and state governments in infrastructure projects along with guarantees are supporting companies in raising bonds," the agency said.
The governments need not provide equity for small infrastructure projects such as 100 km road stretch and is better off by providing viability gap funding to the concessionaire, it added.
However, its equity contribution will be essential in case of strategic infrastructure projects including metro rails.
"Equity contribution from government is a statutory requirement for strategic infrastructure projects such as metro rails. These infrastructure projects involve a long gestation period and need long-term funds for execution."
"Sovereign participation eases access to funds from ultilateral agencies. Low-cost loans with a long repayment period reduce stress on projects and thus user charges, increasing usage of the services offered by these projects," the agency said.
India Ratings observed that diversification of the infrastructure market with easy entry and exit barriers for different types of investors such as shareholders, bankers and bond holders is a continuous process and results cannot be achieved overnight.
"The broadening of the debt market has begun with infrastructure players increasingly and successfully issuing corporate bonds at low interest rates," it said.