TAMIL NADU URBAN DEVELOPMENT FUND

Municipal Development Funds provide a much needed link between civic infrastructure financing needs and domestic capital markets. The urban financing challenge for Tamilnadu, given the high urbanisation trends and undersupply of civic infrastructure is self-evident.

Since 1988, Government of Tamil Nadu has been implementing the Tamil Nadu Urban Development Project (TNUDP) which was financed by International Development Agency (IDA) of World Bank, of which one of the components was the Municipal Urban Development Fund (MUDF).

The successful track record of MUDF encouraged Government of Tamil Nadu to broaden the scope of the Fund, with a view to attracting private capital into urban infrastructure and facilitate better performing ULBs to access capital markets.

TNUDF was established on November 29, 1996, as a trust under The Indian Trust Act 1882., for development of urban infrastructure in the state of Tamilnadu. TNUDF was formed by conversion of Municipal Urban Development Fund (MUDF), with contribution from Government of Tamil Nadu along with all India financial institutions viz., ICICI Bank Limited (formerly ICICI Ltd), Housing Development Finance Corporation Limited and Infrastructure Leasing and Financial Services Limited. TNUDF is the first public-private partnership providing long term debt for civic infrastructure on a non-guarantee mode. TNUDF is managed by a Corporate Trustee viz., Tamil Nadu Urban Infrastructure Trustee Company Limited (TNUITCL). The Board of Trustees periodically review the lending policies and procedures.

Tamil Nadu Urban Infrastructure Financial Services Limited (TNUIFSL) is the Fund Manager of TNUDF.

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 partnership
• Operate a complementary window, the Grant Fund, to assist in addressing the problems of the urban poor
• Improve the financial management of urban local bodies enabling them to access debt finance from markets

ELIGIBLE BORROWERS

• Urban Local bodies (Corporations, Municipalities & Town Panchayats)
• Any Private Institutions who creates urban infrastructures.

RESOURCES

Unit Capital
The unit capital is contributed by Government of Tamil Nadu and three Financial Institutions. The contribution towards the Unit Capital is Rs.142.92 Crores by GoTN, Rs.23.32 Crores by ICICI, Rs.16.64 Crores by IL & FS and Rs.16.72 Crores by HDFC.

IBRD Line of Credit
TNUDF has successfully implemented TNUDP II for the period from 1999-2004 under IBRD Line of credit. During the TNUDP-II project period TNUDF has mobilized additional funds from other sources such as issue of bond, user contribution etc., and blended it this with IBRD line of credit. The outstanding loan balance due to GOTN under TNUDP – II as on 31.03.2007 is Rs.185 crores

Under TNUDP-III, the IBRD line of credit is Rs.495 crores (equivalent to US $ 110 million) for the project period of 5 years. During the financial year 2005-2006 & 2006-07 (up to 31.03.2007), a sum of Rs.56.80 crores has been drawn from this line of credit. During the financial year 2007-2008, a sum of Rs.125.00 crores has been drawn from this line of credit. The outstanding loan balance under TNUDP – III as on 31.03.2008 is Rs.181.82 crores.

Market Borrowings
There is obviously a need to raise low cost resources to bridge the huge backlog of civic amenity requirements. In this context, TNUDF has successfully raised of Rs.110.05 Crores from the Capital markets by way of issue of bonds. The rating initially given to the bond was LAA+(SO) and subsequently upgraded to LAAA(SO). It was the first step towards linking Capital market and small city financing needs. This issue was linked to the covenant under TNUDP-II agreement with the World Bank which required that USD 25 Million should be raised from the market by the time USD 40 Million Bank Loan has been disbursed. TNUDF has also blended its loan with Government grants to facilitate investments by ULBs with incentives in poorer areas of the city.

MONITORING & RECOVERY

As for monitoring and recovery, efforts are made to assess the credit risk and concentration of credit. Wherever undue delay is noticed in repayment of dues, constant follow-up action is being pursued. Provision is made in loan agreement to escrow the collections of ULBs in respect of loans sanctioned by TNUDF. In respect of Government guaranteed loans, a recovery mechanism has been established whereby the arrears would be met out of the Grant Fund on a monthly basis. Periodical reviews of defaults on the arrears portfolio are also undertaken by TNUIFSL.