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User right as a mezzanine capital investment: Innovations in infrastructure debt financing

Author

Listed:
  • Manish K. Singh

    (University of Barcelona)

  • S. Ramann

    (Indira Gandhi Institute of Development Research)

Abstract

Bank-led infrastructure financing in India has subsided in a reflection of the micro-prudential risks faced by banks. Bond-based financing is constrained by an incomplete bond market. Foreign borrowing is particularly inappropriate as it forces currency mismatch upon infrastructure projects. In the search for innovative methods of infrastructure financing this paper introduces the possibility of "User right" as one component of infrastructure financing. The key insight is to harness users, from amongst the universe of investors, as financiers with a high yield tradeable debt instrument that derives its value from a rebate on user charges. Liquidity would come about through trading at exchanges, which would yield a liquidity premium. Users as bond-holders would have the incentive to perform monitoring functions, which would enhance accountability. Public interest vested in public infrastructure may improve existing institutional mechanism.

Suggested Citation

  • Manish K. Singh & S. Ramann, 2014. "User right as a mezzanine capital investment: Innovations in infrastructure debt financing," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2014-027, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2014-027
    as

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    File URL: http://www.igidr.ac.in/pdf/publication/WP-2014-027.pdf
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    References listed on IDEAS

    as
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    3. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
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    More about this item

    Keywords

    Financial instruments; institutional accountability; investment analysis;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • O22 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Project Analysis
    • R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning

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