AAI explores new fund-raising options for airport expansion

Mumbai: The finance ministry has quietly junked a proposal from the Airports Authority of India (AAI) to issue tax-free bonds to raise Rs 5,000 crore. With no indication of finance ministry approving the proposal, AAI is gearing up to explore other options to fund expansion of the Chennai and Kolkata airports, and upgradation of a large number of non-metro airports.
“The civil aviation ministry had approached North Block for permission for AAI to raise funds through tax-free bonds, but the finance ministry has not responded till now,” highly-placed civil aviation ministry sources said on condition of anonymity. With North Block not responding positively even several months after the proposal was submitted, both civil aviation ministry and AAI have virtually given up on the plan to raise funds through tax-free bonds.
Cost of funds for the airports is comparatively higher due to high gestation periods involved. In the case of airports and power, the average cost of funds is now estimated at 11.5%. “In comparison, cost of funds for sectors like roads is lower,” said A Subba Rao, president and CFO of the GMR Group, which is upgrading the Delhi airport and has built the new airport at Hyderabad. “Liquidity is plenty today. However, the government and the RBI should ensure that funds are available at a reasonable cost for infrastructure projects,” he said in response to queries.
Issue of tax-free bonds would allow AAI to raise funds at a cheaper cost and the civil aviation ministry had argued that the concession should be granted since the funds were to be invested to build infrastructure.
30/10/09 Economic Times

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Categories: Airports Oct 2009