This is perhaps the finest rate at which any greenfield project in the infrastructure sector has been able to raise funds in the country. Term-lending institution ICICI, which was leading the consortium, had to back out as it could not match the fine rates offered by commerical banks.

At the last moment, the State Bank of India stepped in to replace ICICI as the leader of the consortium, sources said.

Industrial Development Bank of India (IDBI), which was also part of the consortium with a Rs 100-crore commitment, could not match the fine rate of banks and backed out of the deal.

Confirming the financial closure of the deal, Petronet India Ltd's vice-president (finance) S Kapur told The Financial Express: "We have been able to tie up the loans at a very fine rate. The first consortium meeting took place on Monday. The first tranche of the Petronet-VK loan will be drawn within this financial year."

According to banking industry sources, both the deals have unique structures with a reset clause at every five years. The loans are being offered at a fixed rate for a period of five years after which the lenders will reset the interest rate for a period of another five years.

"From purely structural aspect, these are unique deals... Perhaps this is the first instance where banks have agreed to lend at a fixed rate for a period of five years with a provision for resetting the interest rates," said a senior industry analyst.

Kapur said the company has been negotiating with banks and institutions over three months and some of the banks were willing to lend even at less than 14.5 per cent. "We had received commitments worth Rs 1,500 crore," Kapur said.

ICICI and its investment banking arm I-Sec appraised the projects and at one point of time ICICI was even willing to underwrite the entire loan. However, the term-lending institution along with IDBI dropped out of the consortium as it could not offer five-year funds at 14.5 per cent.

The 14-year loan for both the projects will carry a one-year post-construction moratorium. This effectively works out to a two-year moratorium for the Vadinar-Kandla pipeline project (Petronet-VK Ltd) which is set to be completed in a year.

The Rs 410-crore, 113-km Vaidnar-Kandla project -- where Indian Oil and Petronet India hold 26 per cent each with Reliance Petro and Essar Oil holding another 13 per cent each -- has its debt-equity ratio pegged at 3:1. The project is raising Rs 307.5 crore.

The Rs 535 crore Petronet-CCK Ltd is also being financed through a debt-equity ratio of 3:1. This works out to Rs 135 crore with the equity component and debt accounting for Rs 400 crore.

Cochin Refineries (CRL) has recently received government approval to pick up a 23 per cent stake in the Cochin-Karur pipeline (CKPL) being jointly promoted by Bharat Petroleum Corporation and Petronet India. The Rs 535-crore project is scheduled to be commissioned by the end of 2000.

The CKPL plan envisages laying a 308-km long multi-product pipeline from BPCL's existing Irimpanan installation at Kerala to the proposed receiving station at Karur, Tamil Nadu with intermediate tap-off points at Shoranur and Coimbatore.

INSIGHT:

DFIs' long-term viability questioned: If DFIs have a problem matching the rates offered by commercial banks, this is compounded by the moratorium on interest payments which reduces the yield on funds even further, making it unremunerative.

But the larger issue is the edge that commercial banks have over the cost of funds vis-a-vis the DFIs. Also, if banks are able to lend at an effective yield below PLR, it is an indication of the excess liquidity lying with them. So while the present deal may be a short-term phenomenon where DFIs are outpriced, it does raise serious questions about the long-term viability of DFIs without access to long-term retail funds.