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| Govt mulls Rs 50,000-cr debt fund for infra projects |
| Devika Banerji & Jyoti Mukul / New Delhi Feb 10, 2010, 00:15 IST |
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The government is considering a proposal to set up Rs 50,000-crore India Infrastructure Debt Fund to meet the long-term needs of public private partnership projects by tapping foreign and domestic pension and insurance funds, sovereign funds and multilateral institutions.
The fund will lend to infrastructure projects that have begun commercial operations and is intended to take over commercial bank lending to these projects.
A senior government official said the fund was proposed by the Planning Commission and will be considered by the standing committee on infrastructure financing headed by Finance Secretary Ashok Chawla, shortly.
The fund is intended to address a critical need of infrastructure companies in India, which currently lack access to 10- and 20-year funds for long-gestation projects like airports or roads. Most commercial banks lend for less than 10 years. The government-promoted India Infrastructure Finance Company (IIFCL), which was set up to facilitate lending for infrastructure projects, lends funds for roughly the same time period, since it works in consortium with banks.
Government estimates put the debt requirement for infrastructure sector at Rs 988,035 crore during the eleventh plan. Though IIFCL could set up the fund, the government-owned company’s role could be limited to that of a general partner.
The fund in itself can be an independent legal entity, said the official. IIFCL could put in Rs 5,000 crore as its contribution.
Among other sources, the Planning Commission has proposed raising about Rs 20,000 crore from domestic insurance and pension funds, Rs 10,000 crore from foreign insurance and pension funds, and Rs 10,000 crore from foreign sovereign funds and Rs 5,000 crore from multilateral agencies like the World Bank and Asian Development Bank.
Although the lending tenure could span 10 to 20 years, the money is likely to be lent on condition that the entire repayment is completed three years before the expiry of respective project contracts or concessions.
“The proposal has been prepared keeping in mind the need to create a fund for long-term needs of the infrastructure sector,” said a senior Planning Commission official.
The project company will issue a negotiable bond to the fund on the basis of a tripartite agreement between the fund, the project company and the project authority (say, the National Highways Authority of India or a state government).
The bonds could be traded in the market either individually or though an intermediate product created by securitising the bonds.
“The problem with infrastructure financing is that the bond market for infrastructure has not developed , so we basically rely on bank financing, who are able to give loans for a shorter period of time as they rely on short-term deposits and have to maintain their asset liability balance. The need is to draw funds from pension and insurance markets which have long- term deposits and, therefore, there is need for the government to evolve and increase the depth of infrastructure financing,” said Arvind Mahajan, executive director (infrastructure) at consultancy firm KPMG.
Officials said the Planning Commission also proposed the fund could earn a long-term spread of about 100 basis points above its rate of borrowing. This margin could be used to meet the operating costs and to create a corpus to meet the liabilities of non-performing assets.
The rate could be higher, depending on the risk perception associated with each project.
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