Project finance is not one product. Greenfield and brownfield projects demand different debt mixes, covenants and equity tolerance. Here is how Indian sponsors should structure each.
Sponsors often ask us the same opening question when they sit down to plan a new project: "What debt-equity ratio should we target?" It is the wrong first question. The right first question is whether the project is greenfield or brownfield, because that determines everything downstream — senior debt tenor, equity contribution, sponsor support, covenants and the pricing the market will offer.
This article unpacks how project finance is actually structured in India across the two archetypes, with a practical lens for sponsors, promoters and CFOs who are putting the capital stack together.
Greenfield means building from zero. No operating asset, no cash flow history, no existing counterparties on the asset. Think of a new cement plant, a new solar park, a new highway stretch under HAM, or a new manufacturing unit on fresh land. Risk is concentrated in construction, commissioning and early operations.
Brownfield means expanding, upgrading or acquiring an existing operating asset. A debottlenecking capex on an existing steel plant, acquisition of a portfolio of operating solar assets, or capacity expansion of a running logistics park. Risk is concentrated in execution within an operating context, not in establishing the asset itself.
The lender sees these two animals completely differently, and so should you.
A commonly seen debt:equity ratio in Indian project finance is 70:30 for investment-grade sponsors in established sectors, tightening to 75:25 or even 80:20 for strong sponsors in proven asset classes and easing to 60:40 or 65:35 for first-time projects or weaker sectors. These ratios are indicative — the final structure depends on sector, sponsor rating, cash flow predictability and lender appetite in that quarter.
| Parameter | Greenfield | Brownfield |
|---|---|---|
| Typical debt:equity (indicative) | 70:30 or 75:25 | 75:25 or 70:30, often higher |
| Senior debt tenor | 10-18 years | 7-12 years |
| Moratorium on principal | Construction period + 6-12 months | Minimal or nil |
| DSCR covenant | 1.20-1.30x | 1.30-1.50x typically tighter |
| Sponsor support | Extensive — cost overrun undertaking, DSRA | Moderate — depends on acquisition structure |
| Interest during construction (IDC) | Capitalised | Often not applicable |
| Security package | First-charge on project assets, DSRA, TRA | Similar, plus existing asset cross-collateral if same borrower |
Greenfield deals are about convincing lenders that the project will get built on time, within budget, and will ramp up to forecast cash flows. The structure reflects that.
Equity comes first. Lenders expect 100% of equity to be infused before any debt drawdown, or at least front-loaded aggressively. Phased equity infusion, common in older deals, is harder to negotiate in 2026.
Construction milestones drive drawdown. Senior debt is drawn in tranches against certified construction progress, verified by a lender's independent engineer. Delays trigger review rights and, in serious cases, default.
Cost overrun undertaking from sponsor. The sponsor typically provides an unconditional undertaking to fund cost overruns up to a specified percentage (often 10-15%). Beyond that, lenders re-underwrite.
Debt Service Reserve Account (DSRA). Usually one to two quarters of debt service, funded at COD, invested in eligible securities, and available for any shortfall.
Trust and Retention Account (TRA). All project cash flows are routed through a waterfall account, paying operating expenses, debt service, reserves and distributions in that order.
Hedging mandates. For projects with foreign currency debt or commodity exposure, lenders increasingly mandate minimum hedge ratios written into the common terms agreement.
Brownfield structures look superficially similar but differ in important ways.
Shorter tenor, tighter DSCR. Because cash flows are established, lenders expect faster amortisation and higher coverage. This is good for sponsors — less interest paid over the loan life — but requires disciplined projections.
Less sponsor support. When the asset is already operating, lenders rely less on the sponsor's balance sheet. Cost overrun undertakings are modest or absent. However, if the brownfield capex is large relative to the base asset, sponsor support creeps back in.
Refinance of existing debt. Most brownfield deals involve refinancing the acquired or existing asset's debt alongside funding the capex. This is an opportunity to reset tenor, pricing and covenants in one transaction.
Acquisition financing lens. If the brownfield investment is an acquisition, lenders look at target standalone cash flows, target leverage post-acquisition, and the sponsor's consolidated leverage. Deal structure (share purchase vs asset purchase) drives security package.
Underestimating equity timing. Delayed equity infusion triggers default clauses. Build a realistic equity draw schedule and hold to it.
Treating IDC casually. Interest during construction, capitalised into project cost, is a real cash cost at COD. Model it at stressed interest rates, not base.
Overcounting tax benefits. Sponsors often assume aggressive tax shields. Lenders model conservatively. Meet in the middle to avoid cash flow surprises.
Ignoring refinance risk. A 12-year senior loan at COD will likely be refinanced around year 5-7 at a lower rate. Build this into sponsor returns but do not bake it into base case lender projections.
Weak rating strategy. A strong credit rating reduces both pricing and covenant rigidity. Our Credit Rating Advisory team regularly sees sponsors save 50-100 bps on senior debt because they invested early in rating preparation.
Project finance in India in 2026 is a lender's market for weak structures and a borrower's market for disciplined ones. The sponsors who close fast, at the best pricing, are those who walk into the lender room with a pre-validated capital stack, independent engineer and independent technical adviser reports in hand, and a clear story on greenfield versus brownfield risk mitigation.
Finnova Advisory structures project finance mandates end-to-end — from capital stack design to lender shortlisting, term sheet negotiation, common terms agreement and financial close. If you are planning a new project or a major expansion and want to pressure-test the debt mix before going to market, Contact us. You can also read more about our Corporate Finance work.
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