Tamilnadu Urban Development Fund (TNUDF)

A Presentation
January 2003

Scheme of Presentation
Introduction

Purpose of the fund Objectives Eligible borrowers / sectors Lending policies and procedures Project Prototypes

Introduction

A Trust established under the Indian Trusts Act, 1882, by GoTN, ICICI, HDFC and IL&FS with a line of credit from the World Bank

Purpose of the Fund

TNUDF is a trust fund engaged in the development of urban infrastructure in the state of Tamilnadu. This trust was created as part of a restructuring exercise of an existing World Bank credit to the Government of Tamilnadu (GoTN) in September 1996. Under the World Bank credit of Rs.167 crores, the Municipal Urban Development Fund (MUDF) was set up in 1988 to fund urban infrastructure needs. The fund has been in existence for 8 years and had extended loans of about Rs.200 crores to 74 Urban Local Bodies (ULBs) upto September 30, 1996.

Purpose of the Fund

Successful track record enabled GoTN to broaden the scope of the fund so as to attract private capital into urban infrastructure, and facilitate better performing ULBs to access capital markets. In 1996, GoTN, with the assistance of World Bank, invited three financial institutions namely, ICICI, HDFC and IL&FS to convert MUDF into a full fledged trust, namely TNUDF with a private fund manager to deploy the resources of the trust. Accordingly, TNUDF was established as a trust under the Indian Trusts Act 1882, and is managed by an Asset Management Company, Tamilnadu Urban Infrastructure Financial Services Limited (TNUIFSL)

Fund Objectives

Fund urban infrastructure projects which improve the living standards of the urban population; Facilitate private sector participation in infrastructure through joint venture and public-private partnerships; Operate a complementary window, the GRANT FUND, to assist in addressing the problems of the urban poor.

Eligible borrowers / sectors

Urban Local Bodies (ULBs), statutory boards, public sector undertakings and private corporates are the eligible borrowers of the Fund. The eligible sectors include water supply, sanitation, solid waste management, roads / bridges, transportation, sites and services and integrated area development

Lending policies & procedures

Eligible items for TNUDF funding

Only for capital expenditure
Civil works Services Goods / Materials

TNUDF will not fund

Land acquisition costs O&M expenditure / other revenue expenditure such as salaries etc.

Eligibility Criteria

For ULBs etc.

TE / TR < 1 Annuity / Total revenue < 30%

In case where ULBs fail to meet above criteria, the project specific returns (IRR) should be greater than 18.5% p.a. For private sector borrowers

Long term debt < 1.5 Net worth Net fixed assets > 1.5 Long term debt Average DSCR > 1.5

Security Measures

Special recovery mechanism such as escrow accounts of property tax, water charges etc. and hypothecation of movables are being put in place. In case of commercial complexes,default option of conversion of upto 40% of loans outstanding into office space is being stipulated.

TNUDF Experience - Project Proto types

Commercial and Non-commercial
Three fold categorisation indicates on the demand side certain types of urban infrastructure such as toll bridges, markets and byepasses can be supported by reliance on project cash flows to service debt. Projects such as stand alone commercial complexes and office space which rarely recover debt service from rentals are not worth investing in and do not constitute infrastructure in any real sense. Second, environmental infrastructure namely water supply, sanitation and solid waste need a mixture of debt and grant financing and should attempt to recover appropriate user charges. Third, other municipal infrastructure such as internal roads, parks, crematoriums etc would have to rely solely on general revenues to service debt.

TNUDF Experience - Commercial

KARUR BRIDGE

Based on these principles, TNUDF has facilitated the first BOT / Toll bridge, contracted by an ULB in India at an estimated cost of Rs.16 crores. The users of the bridge are freight traffic with the capacity to pay. As the bridge would substantially reduce vehicle operation costs (VOC) and time, cash flows to the operator is expected to be predictable. The enabling provisions of Tamilnadu State Toll Act has been amended allowing ULBs to enter into BOT style operation, thus offering the investor a stable regulatory framework.

Toll Fixation Criteria

The tolls are as follows: Vehicle Type

Car/Jeep/Van LCV, Tractors Trucks Bus Multi-axle trucks, Cranes, Earth-moving machines & similar heavy vehicles

Single Multiple Monthly Pass (Rs.) Pass (Rs.) Pass(Rs.) 10 15 300 25 35 1050 30 45 1350 30 60 1800 50 ---

TNUDF Experience - Commercial

MADURAI BYE PASS
Madurai the second largest city in Tamilnadu, is a Corporation with an area of 51.82 sq.kms and a population of 9.4 lacs (1991 census). It is a major commercial and religious centre in the Southern region, linking important trade and tourist flows within Tamilnadu. The scheme is the construction of a 2 lane Inner Ring Road (IRR) of 27.2 kms between Kanyakumari Road and Melur Road; for which land acquisition has been completed. The IRR would also include construction of 2 Railway Over Bridges (ROB), one each at Ramnad road and Tirunelveli road, and a high level bridge across the Vaigai River.

TNUDF Experience - Commercial

MADURAI BYE PASS
Madurai replaced its traditional borrowings in the form of long term loan by its own debt paper. Madurai is the first municipal corporation in Tamil Nadu, which has issued debentures for its project refinancing viz., the Inner Ring Road. The servicing of the bonds would be met out of the toll collections arising out of the traffic on the road. This issue resulted in a flat cost saving of about 2.50 to 3.00 percentage points to the corporation.

Madurai Toll Collection

(All Fig Rs in Lacs ) S . No 1 2 3 4 5 6 7 8 9 10 Months Nov -00 Dec Jan-01 Feb March April May June July Aug Total Analys is : Total Collection till date No. of Days Avg. Daily Collection Avg. Monthly Collection 436.54 304 days 1.44 lacs 43.65 lacs Trend Analys is Avg. Collection in Nov - Dec 00 Avg. Collection in April-May 01 Avg. Collection in July-Aug 01 Rites Projected Collect. - 31s t March 01 Actual Collection till March 01 Avg Collections for the 5 mts ended March 01 Achivement as a % of projections Rites Projected Collect. p.m in 2001 Avg Collections till date pm in 2001 Achivement as a % of projections 37.89 44.67 50.71 17.9% 13.5% 458.0 202.6 40.5 44.2% 80.15 46.79 58.4% FY 2002 Increas e Increas e FY 2001 Amt 35.31 40.47 42.23 41.54 43.03 45.62 43.71 43.20 52.17 49.25 436.54 days / Mt 30 31 31 28 31 30 31 30 31 31 304 Av g daily 1.18 1.31 1.36 1.48 1.39 1.52 1.41 1.44 1.68 1.59 1.44 50.71 (for July-Aug) 43.65 (Avg over 10 mts ) 44.67 (for April-May) 37.89 (for Nov-Dec) Av g Mt

TNUDF Experience
Commercial - Madurai Bye pass

TNUDF Experience
Loan Grant Blending - Storm Water Drain in Valasaravakkam

TNUDF Experience - Commercial

SOLID WASTE MANAGEMENT CONTRACTS Conversion of Municipal Solid Waste into Organic Manure (50 tpd plant) Supply of pay contract between ULB and Private Sector operator at Rs.3.50 pt + lease rentals Pressure / Incentive for the ULB to keep the streets clean.

TNUDF Experience Public - Private Partnerships

ALANDUR MODEL 15,000 Households out of 17,000 have contributed Rs.5000/- per household representing one third of Project Cost of Rs.34 crores. Initial tariff in Alandur fixed at Rs.150 per house per month. Private Participation in that the private sector has invested equity in the STP.

TNUDF Experience Public - Private Partnerships

ALANDUR MODEL

Vision

TNUDF would position itself as a strategic intermediary linking capital markets with Urban Infrastructure needs. Positive performance during the plan period, achievement of lending targets, high repayment rates and quality infrastructure would demonstrate a track record enabling market access for the Fund. Capacity building activities, financially disciplined ULBs and strong project pipeline are enabling factors. Preparation includes rating of TNUDF risk assessment of ULBs, setting up a credit enhances, revenue intercepts etc.

Resources
1) As a part of its vision raising exercise, TNUDF raised Rs.110.05 crores from the capital market during September November 2000, by way of issue of unsecured non convertible debentures of Rs.1,00,000/- each. This is the first nonguaranteed, unsecured bond issue by a financial intermediary in India, with urban municipal cash flow as its base.
2) The terms of the issue are as follows:
Size of the issue Tenor Coupon Interest payment Redemption Credit Rating Rs.110.05 crores 5 years 11.85% p.a. Half yearly on May 7th and November 7th In Five equal annual instalment LAA+(SO) by ICRA Ltd.,

Way Forward - Water Sanitation Fund

Urban Infrastructure, especially water and sanitation investments require long term debt on account of externalities over time and space, severe fiscal constraints on the supply of equity from State and local Governments for new investments and substantial low income population constraining the ability to pay for high financing costs. Consequently, the need to link city infrastructure financing requirements with domestic capital markets is well understood. Debt finance is a pre-requisite for undertaking essential civic investments, and in the long run, domestic savings through capital markets would have to be, predominant source of supply. The need for an institutionalised mechanism to raise low cost funds for water and sanitation is clear cut with the US Bond Bank as a potential model.

WAY FORWARD
Linking Markets & Cities with Intended Use Plans
Creation of a revolving fund by GoI - States Tax concessions for municipal bonds by GoI

Structure a statutory framework to manage the fund

Borrowing eligibility criteria to be established Project implementation procedures including rational & quick procurement Framework for tariff setting - through a democratic process Fixation of rational levels of upfront contribution by the community / local body Capacity building for the raters/Merchant Bankers

Resources Water and Sanitation Pooled Fund

A Pooled entity namely, a Trust called Water and Sanitation Pooled Fund (WSPF) has been registered. The initial contribution of the trust is Rs.10,000/Objective is to link civic financing needs with the capital market

Resources Water and Sanitation Pooled Fund

The terms of the issue are as follows:
Issue Tenor Put / call option Redemption Interest payment Face Value of a Bond Credit Rating Guarantee Water and Sanitation Pooled Fund 15 years At the end of 10th year In 15 equal annual instalments Annually in diminishing balance Rs.1,00,000/AA (SO) by ICRA, Ind AA (SO) by Fitch Ratings 50% of the principal guaranteed by USAID and GoTN has undertaken to top up the shortfall through interception of State Finance Commission Devolution Rs.6.90 crores to be invested in highly secured and liquid investments in the name of Bond Service Fund.

Debt Service Reserve Fund

Resources Water and Sanitation Pooled Fund

The subscribers include Banks and Provident Fund Trust. The sectorwise subscription of the bonds is as follows:

Sector Banks Provident Fund Trust

Rs. (crs) 30.25 0.16

30.41

Resources Water and Sanitation Pooled Fund

LIST OF POOLED PROJECTS S.No. Particulars Water Supply Schemes: Ambattur Municipality Project Cost Rs. In lakhs Loan amt Sanctioned 67.32 109.20 195.00 51.00 403.00 357.00 178.00 281.00 547.00 138.00 179.00 16.00 Loan Disbursed 67.32 109.20 105.75 51.00 403.00 357.00 178.00 281.00 547.00 138.00 179.00 16.00

1 2 Tambaram Municipality 3 Madhavaram Municipality 4 Rajapalayam Municipality Adjacent Urban Areas - AUA 5 (I) Alandur Municipality 6 (ii) Pammal Municipality 7 (iii) Ankapathur Town Panchayat 8 (iv) Ullagaram Town Panchayat 9 (v) Porur Town Panchayat 10 (vi) Maduravoyal Town Panchayat 11 (vii) Valsaravakkam Town Panchayat 12 (viii) Meenambakkam Town Panchayat Under Ground Drainage: Madurai Corporation

336.56 182.00 325.00 85.00 427.00 378.00 188.00 298.00 579.00 146.00 189.00 17.00

13

1407.00 4557.56

500.00 3021.52

325.00 2757.27

TNUDF - Institutional Positioning

PAPER ONE RESERVE FUND MODEL STRUCTURE Simplified Flow of Funds For Reserve Model Pooled Financing
Pooled Financing Authority Bonds Long term Investors Funds Market Rate

Sovereign Govt. Transfer Payments

Sovereign Govt. Grant

Reserve Fund

Revenue Intercept

Local Govt. Project

Local Govt. Project

Local Govt. Project

Local Govt. Project

Local Govt. Project

Principal & Interest Payments Trustee If necessary

If necessary