Professional Knowledge: Infrastructure Finance and Project Appraisal
Appraisal sequence
Infrastructure lending begins with project identification, feasibility, DPR, techno-economic appraisal, sanction, disbursement, monitoring and O&M. A bank or IIFCL-style lender appraises technical design, sponsor capacity, market/traffic demand, land and permits, EPC contracts, O&M arrangements, environmental and social safeguards, and regulatory tariffs. The DPR is a starting document, not a substitute for independent diligence.
Credit metrics
- DSCR = CFADS ÷ debt service (principal + interest). CFADS is cash flow available for debt service, not PAT.
- ADSCR averages DSCR over the loan life; LLCR = NPV of CFADS over loan life ÷ outstanding debt; PLCR uses project life.
- NPV discounts cash flows at WACC or hurdle rate; IRR is the discount rate giving NPV = 0. Sensitivity tests traffic, tariff, cost and interest-rate shocks.
- DSRA, escrow of receivables, tripartite agreements and covenants mitigate cash-flow and default risk.
PPP structures
BOT/DBFOT transfers design, build, finance, operate and transfer obligations to the concessionaire. HAM provides a construction grant (40% under MoRTH) and O&M payments, reducing traffic risk. TOT monetises operating assets; InvITs pool operating infrastructure and distribute cash flows.
Worked example
CFADS = ₹120 crore; debt service = ₹100 crore. DSCR = 1.20x. If the lender's minimum is 1.25x, the project fails by 0.05x. To reach 1.25x, CFADS must be ₹125 crore, or debt service must fall to ₹96 crore. A DSRA of one quarter's debt service is a cushion, not a cure.
Traps
Using profit after tax as CFADS, confusing DSCR with interest coverage, ignoring construction delay, and treating a government guarantee as a substitute for project cash flow all cost marks.