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WORLD BANK INSTITUEWORLD BANK INSTITUE
FINANCINGFINANCING
o arao ara
Senior PartnerSenior Partner
Luthra & Luthra
Law Offices
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A VIEW OF THE INDIANA VIEW OF THE INDIAN
INFRASTRUCTURE SPACEINFRASTRUCTURE SPACEINFRASTRUCTUREINFRASTRUCTURE FINANCINGFINANCING GOINGGOING
THROUGHTHROUGH AA PARADIGMPARADIGM SHIFTSHIFT GrowthGrowth ofof thethe IndianIndian economyeconomy ((88%% +)+)
KeyKey bottleneckbottleneck inin thethe growthgrowth storystory inin slowslow growthgrowth ofof
InfrastructureInfrastructure DevelopmentDevelopment inin IndiaIndia
DEMANDDEMAND CONTINUESCONTINUES TOTO OUTPACEOUTPACE
SUPPLYSUPPLY ININ ALMOSTALMOST ALLALL SECTORSSECTORS OFOFINFRASTRUCTUREINFRASTRUCTURE
GovernmentGovernment developmentdevelopment targetstargets havehave notnot beenbeen metmet
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A VIEW OF THE INDIANA VIEW OF THE INDIAN
INFRASTRUCTURE SPACEINFRASTRUCTURE SPACE PowerPower enerationeneration shortshort ofof lannedlanned tar etstar ets
EASYEASY AVAILABILITYAVAILABILITY OFOF CREDITCREDIT
NeedNeed forfor banksbanks toto deploydeploy largelarge amountsamounts ofof
fundsfunds SmallSmall commercialcommercial banksbanks readyready toto participateparticipate
ForeignForeign banksbanks willingwilling toto provideprovide creditcredit
LOANLOAN TENORTENOR INCREASINGINCREASING
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A VIEW OF THE INDIANA VIEW OF THE INDIAN
INFRASTRUCTURE SPACEINFRASTRUCTURE SPACEMARKETMARKET RELATEDRELATED RI KRI K LimiLimi
RecourceRecource ProjectProject FinanceFinance:: TelecomTelecom andandLNGLNG..
:: nono cre wor ycre wor y::
DemandDemand--supplysupply mismatchmismatch vendorvendor finance,finance,
corpora ecorpora e nance,nance, uu nono pro ecpro ec nancenance..
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LEGAL ISSUES INLEGAL ISSUES IN
INFRASTRUCTURE FINANCINGINFRASTRUCTURE FINANCING
PushPush backback ononcrosscross defaultsdefaults DemandDemand forfor deletiondeletion ororcrosscross accelerationacceleration
TIMETIME FORFOR SECURITYSECURITY CREATIONCREATION SecuritySecurity creationcreation asas aa CPCP soughtsought toto bebe waivedwaived
becausebecause ofof requirementrequirement ofof licenselicense oror approvalapproval
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LEGAL ISSUES INLEGAL ISSUES IN
PRESENCEPRESENCE OFOF FOREIGNFOREIGN LENDERSLENDERS:: SECURITYSECURITY
CREATIONCREATION BECOMESBECOMES DIFFICULTDIFFICULT
interestinterest ononimmoveableimmoveable propertyproperty andand sharesshares
RBIsRBIs permissionpermission requiredrequired forforsponsorsponsortotoguaranteeguaranteeforeignforeign loansloans
NeedNeed toto identifyidentifyexoticexotic structuresstructures
IncreasesIncreasesenforceabilityenforceability && regulatoryregulatory riskrisk
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LEGAL ISSUES INLEGAL ISSUES IN
INFRASTRUCTURE FINANCINGINFRASTRUCTURE FINANCING
BenefitBenefit ofof SARFAESISARFAESInotnot availableavailable
CreatingCreating interinter--creditorcreditor mechanismmechanism remainsremains aa
DomesticDomestic lenderslenders shouldshould continuecontinue toto enjoyenjoy theirtheir rightsrights
whilewhile foreignforeign lenderslenders dodo notnot getget disdis--advantagedadvantaged SuchSuch ICAICA notnot testedtested forfor enforceabilityenforceability
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LEGAL ISSUES INLEGAL ISSUES IN
INFRASTRUCTURE FINANCINGINFRASTRUCTURE FINANCING
DIFFERENTDIFFERENT GOVERNINGGOVERNING LAWSLAWS ANDAND
LoanLoan agreementagreement andand InterInter--creditorcreditor agreementagreement::
EnglishEnglish LawLaw
SecuritySecurity DocumentsDocuments:: IndiaIndia LawLaw
InIn aa default,default, thisthis createscreates multiplemultiple suitssuits
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LEGAL ISSUES INLEGAL ISSUES IN
INFRASTRUCTURE FINANCINGINFRASTRUCTURE FINANCING
CostCostofof securitsecurit creationcreation continuescontinues toto bebe hi hhi h
ProcessProcessforfor securitysecurity creationcreation remainsremainslengthylengthy eedeed forforlicensors/lessorslicensors/lessors permissionpermission
PermissionsPermissionsremainremaindiscretionarydiscretionarywithwith nono objectiveobjective
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LEGAL ISSUES INLEGAL ISSUES IN
INFRASTRUCTURE FINANCINGINFRASTRUCTURE FINANCING
OnlyOnlyrevenuerevenueavailableavailable asas securitysecurity
securitysecurity
CauseCause forfor concernconcern sincesince allowsallows thethesponsorsponsor toto divertdivertrevenuesrevenues
SinceSince nono securitysecurity overover revenues,revenues, thirdthird partyparty getsgets
cleanclean titletitle LendersLenders havehave protectionprotection onlyonly throughthrough contractualcontractual
covenantscovenantswhichwhich areare notnot relevantrelevant forfor nonnon bonabona--fidefide
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LEGAL ISSUES INLEGAL ISSUES IN
INFRASTRUCTURE FINANCINGINFRASTRUCTURE FINANCING
Im ortantIm ortant contractualcontractual a reementsa reements likelike EscrowEscrow
Agreement,Agreement, TRATRA && SubstitutionSubstitution AgreementAgreement areare
licensorlicensor drivendriven TakeTake--itit--oror--leaveleave--itit draftsdrafts areare providedprovided
CreateCreate conflictingconflicting issuesissues:: lenderslenders rightsrights &&licensorslicensors stipulationsstipulations
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LEGAL ISSUES INLEGAL ISSUES IN
NHAI PROJECTSNHAI PROJECTS
ProjectProject documentsdocuments forfor tolltoll basedbased roadroad projectsprojects
providesprovides thatthat securitysecurity maymay bebe createdcreated overover thethecashcash
owow nn avoravor oo t et eescrowescrow agentagent oror t et e ene tene t oo
thethe lenderslenders
SecuritySecurity normallynormally isis inin favorfavor ofof aa trusteetrustee holdingholding
forfor thethe benefitbenefit ofof thethe lenderslenders LegalLegal fictionfiction thatthat thetheescrowescrow agentagentbeingbeing thetheagentagent
ofof thethetrusteetrustee
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LEGAL ISSUES INLEGAL ISSUES IN
NHAI PROJECTSNHAI PROJECTS
SUBSTITUTIONSUBSTITUTION AGREEMENTAGREEMENT ISIS LOOSELYLOOSELY
BOUNDBOUND DETERMINATIONDETERMINATION SPECIFIEDSPECIFIED
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LEGAL ISSUES INLEGAL ISSUES IN
INFRASTRUCTURE FINANCINGINFRASTRUCTURE FINANCING
NeedNeed toto definedefinesubordinationsubordination principlesprinciples
subordinatesubordinate lenderlender andand seniorsenior lenderslenders toto
restrictrestrict abilityability toto accelerate,accelerate, seekseek repaymentrepayment &&prepaymentprepayment
SubordinationSubordination isis onlyonly throughthrough contractcontract andand notnotunderunder lawlaw (like(like equityequity investment)investment)
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LEGAL ISSUES INLEGAL ISSUES IN
INFRASTRUCTURE FINANCINGINFRASTRUCTURE FINANCINGDELHI AIRPORTDELHI AIRPORT
BrownfieldBrownfield projectsprojects dodo notnot provideprovide forforsecuritysecurityvv yy rans erans e asse sasse s vv
lease/licenselease/license rightsrights cannotcannot bebe mortgagedmortgaged forfor thethe
durationduration ofof thethe lease/licenselease/license
EnforcementEnforcement ofof pledgepledge overover sharesshares ofof thethe
projectproject companycompany wherewhere thethe licensorlicensor isis alsoalso
participatingparticipating maymay bebe difficultdifficult
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