Shrinking the size of lenders' consortium might be helpful, say infra firms

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Echoing the views of top banks, infrastructure companies say shrinking the size of the consortium of lenders they do business with might be helpful. The companies hope this will lead to quicker decisions. It would also mean fewer banks, with larger exposure to some accounts.

For instance, as part of its long-term strategy, Hindustan Construction Company (HCC) is looking to shrink the size of its consortium of lenders, said Arjun Dhawan, whole-time director and group chief executive officer.In its 2017-18 (FY18) annual report, the company listed 25 banks and financial institutions with which it did business. Till recently, infrastructure firms working in projects with huge investments, often had 10 or more lenders.

Paresh Mehta, chief financial officer for Ashoka Buildcon said not out-sourcing debt syndication also helps keep the lender pool small. Debt syndication is process by which different parts of a project are financed by different lenders. “We have around ten banks in the working capital consortium and four to five at the project funding level. Over the last couple of years, definitely the number of banks has fallen. In view of project size becoming large and second advisory firms prefferring to deal at a small loan size with each bank, it is challenging to achieve syndication. In our case, we do our debt tie up internally without advisory," Mehta said. 

There is also an official directive to public sector banks from the finance ministry to reduce the number of banks in the consortium that lend to projects. This was on the backdrop of lengthy decision making process and consequent delays. Infrastructure companies like HCC expect the move to be beneficial. “We would like to shrink the size of the banker consortium to the company, as it is easier and swifter to coordinate decision making with a smaller, focused pool of lenders,” said Dhawan.

Some infrastructure and power companies in the past have failed to arrive at a common debt-resolution plan owing to lack of support from few of the lenders who were part of a larger consortium. While HCC is in the process of doing so, others such as Sadbhav Infrastructure Projects are already scaling down. In Sadbhav Infrastructure’s FY18 annual report, three banks are listed, while its 2016-17 report lists 11 banks. Top officials of the company were not available for comment. 

The move to fewer lenders could, however, have its own set of complications. “With banks shying away from taking huge exposures the move — to reduce the number of banks — will be challenging,” said the finance official quoted earlier. Some others expect as more infrastructure assets change ownership, it will allow an opportunity to restructure banks consortiums. “The current churn in portfolio through asset sale also helps both companies and banks to relook how their consortium is structured,” said Vishwas Udgirkar, partner with Deloitte India.

He added, “Banks are also pushing for the move. The benefits will be more administrative than financial for infrastructure companies. I don’t think there would a problem with high exposure as banks will keep that in mind before lending.”

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