The instrument enjoins upon the financial institutions to fund long gestation infrastructure projects. L&T would be benefitted to the extent of raising through bonds a substantial amount of Rs 70 crore, that is almost 70 per cent of the project cost.

The instrument -- a maiden effort initiated by Hudco -- has been introduced to tide over the problem of short-term maturity profiles of financial institutions and the long gestation period of the infrastructure type projects before they are able to service the debt. The instrument will be placed at a discount or at a market determined price to bankers and institutional investors while disbursing term loan.

The loan contract will be based on the period within which funding agencies will pick up stake. ``Underthe new arrangement, both the Hudco and Industrial Development Bank of India (IDBI) will subscribe to the bonds floated by L&T to the tune of Rs 35 crore each,'' the Hudco's director, finance, S Sundreshan told The Financial Express.

The bonds floated under section 10 (23) G will have a maturity period of 12 years and will be tradeable in the market, Sundreshan said.

The exercise is also identical to securitisation of assets where lending lending institutions ties up with buyers like banks for the assets when the loan is sanctioned, he said.

``Negotiations are on with Indian Overseas Bank, Canara Bank, and Bank of India for a Rs 35 crore loan which is expected to be parcelled among these banks to ensure a fund flow to Hudco and at the same time provide an infrastructure asset base for the banking sector.

Sundreshan said: ``Through structuring the new arrangement, the institution would be able to meet liabilities at the time of maturity without incurring additional costs in the form ofrefinancing.''

The mechanism needs to be fine-tuned since the stamp duty problem is yet to be addressed, he added.

The company's bypass project from Athupalam bridge to Palghat will be built on build-own-operate-and-transfer (BOOT) basis and is expected to reduce the distance by 20 Km. It has a repayment period of thirty years.

The Crisil has been assigned to do the rating of the project.