| London has emerged as the most likely choice for setting up the overseas subsidiary of India Infrastructure Finance Corporation Ltd, a government-owned special purpose vehicle (SPV) that was set up recently to finance infrastructure development in the country.
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| London, a global financial hub, has emerged as the favourite, narrowly edging out Singapore, the tiny but well-placed East Asian business hub.
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| “A formal decision is likely to be taken soon,” said a finance ministry official, adding that the other cities considered were Dubai and Mauritius.
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| The finance ministry and the Reserve Bank of India (RBI) are finalising the mechanism to invest a small part of India’s $250-billion-plus forex reserves in the IIFCL’s overseas subsidiary. The company will lend to Indian infrastructure companies for capital expenditure overseas.
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| Law firm Amarchand Mangaldas, which was roped in to give advice on the venue and the structure of the SPV, submitted its report last month. It did a comparative analysis of the various cities where the SPV could be set up.
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| “Though it did not pinpoint any particular city, London seems to be the preferred destination. The government will now have to take a final decision,” the official said.
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| The cities were compared on the basis of regulatory environment, taxation issues and protection to investments. “Though the tax in London is a bit high, it is a well-regulated market,” said the official.
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| The law firm has also favoured a preferential share issue structure over the refinance structure for the SPV.
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| However, the RBI has been insisting on the refinance option. The RBI officials reiterated this in a meeting with the finance ministry on November 21.
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| However, the finance ministry officials held that the refinance option would not be feasible as it took six to nine months for regulatory concurrence for providing financial guarantee to such entities.
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| The central bank fears that investing in such an SPV will create a wrong precedence and it will have to deal with more such proposals.
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| Replying to a question at the recently held Economic Editors’ Conference on the use of forex reserves for infrastructure, Finance Minister P Chidambaram had said it was just a matter of time before the proposal was implemented as the decision was taken at the highest level.
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| The finance ministry officials are worried that it will be an embarrassment for the government if the proposal does not go through. |
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