IIFCL to launch credit enhancement scheme

After providing a guarantee for its first pilot transaction last month, India Infrastructure Finance Company Ltd (IIFCL) hopes to launch a regular credit enhancement scheme by April.

Under the scheme, IIFCL will provide a partial credit guarantee to enhance ratings of bond issues, enabling channelisation of long-term funds for infrastructure projects. Finance Minister P Chidambaram's budget speech on Thursday might mention the scheme.

Around 15 project organisers have shown interest in availing the scheme. These projects are in various sectors such as sea ports, wind energy, fertilisers (a project each), power transmission (two), and roads (seven), among others. All the projects are in the public-private- partnership mode.

The total size of these projects is around Rs 20,000 crore and bonds worth Rs 5,000 crore will be issued by companies under the credit enhancement scheme.

"IIFCL's guarantee for the first pilot transaction has been executed in January 2013. This initiative has paved the way for catalysing development of a corporate bond market for the infrastructure sector and creating a new asset class of investors such as insurance companies and pension funds in the country," said IIFCL chairman S K Goel.

Encouraged by the market response, he said IIFCL was working towards launching a regular credit enhancement scheme. It is sending a detailed idea to the government.

The Asian Development Bank is participating in the scheme by providing a backstop guarantee facility up to 50 per cent of IIFCL's underlying risk.

On the budget expectations of the infrastructure sector, Goel said tax-saving infrastructure bonds, discontinued in the previous budget, should be brought back. "In pre-budget discussions, this suggestion was given to the government. These bonds are for retail investors, unlike tax-free bonds which are mainly for high net worth individuals," he added.

IIFCL was allowed to issue tax-free bonds up to Rs 10,000 crore in the budget this year. After mobilising Rs 785 crore through private placement and Rs 2,883 crore through tranche-I of a public issue of bonds, it is planning to mobilise a residual Rs 6,331 crore through a second tranche of bonds by March 15. The issue opened for subscription yesterday.

He said he also expected tax relief for investors in Infrastructure Debt Funds (IDFs) in the budget. IDFs were announced in Budget 2011-2012, to facilitate the flow of long-term debt into infrastructure projects. These can be set up as either a trust or a company. A trust-based IDF is normally a mutual fund, while a company-based one is a non-bank financial enterprise.

Infrastructure spending in the 12th five-year Plan (2012-13 to 2016-17) is projected at about $1 trillion (at a Rs 53 a dollar exchange rate), against a little less than $500 billion in the 11th Plan.