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      Question

      Refinancing Risk' is particularly high for

      infrastructure financing company because:
      A Infrastructure projects are short-term, but the company borrows for the long term. Correct Answer Incorrect Answer
      B The RBI does not allow IIFCL to borrow from the market. Correct Answer Incorrect Answer
      C Infrastructure projects are long-term, but market funds are often available for shorter durations. Correct Answer Incorrect Answer
      D Infrastructure borrowers always pay back their loans early. Correct Answer Incorrect Answer
      E There is no risk of interest rates changing in India. Correct Answer Incorrect Answer

      Solution

      'Refinancing Risk' is particularly high for infrastructure financing companies because they face a severe asset-liability mismatch, where they fund long-term, low-liquidity assets (often 20+ years) with short-term, volatile liabilities. This risk is compounded by delayed project cash flows, high leverage, and reliance on bank funding in the absence of a robust long-term corporate debt market.

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