IIFCL halves interest rates on foreign currency loans

Infrastructure companies might now get foreign currency loans at about half the prevailing market prices, with the UK arm of India Infrastructure Finance Company Ltd (IIFCL) cutting the interest rates by up to 275 basis points (bps). Project developers can now get loans at Libor plus 200 bps, against the market rate of Libor plus 550 bps.

The benefit can also be availed of by project developers which have already raised money through external commercial borrowing (ECB), with IIFC (UK) providing take-out financing to the extent of 100 per cent of the residual amount. As ECBs are for a shorter duration of about five years, take-outs by IIFC (UK) will allow developers access long-term loans.

“According to directions from Finance Minister P Chidambaram, we have decided to work on a thin margin and reduce the rate so infrastructure projects become viable. This is the lowest rate in the world. Developers will be encouraged to import better quality equipment,” said IIFCL Chairman S K Goel.

EASY NORMS

• Project developers can now get loans at Libor plus 200 bps, against the market rate of Libor plus 550 bps
   
• The benefit can also be availed by project developers that have already raised money through external commercial borrowing (ECB), with IIFC (UK) providing take-out financing to the extent of 100 per cent of the residual amount
   
• As ECBs are for a shorter duration of about five years, take-outs by IIFC (UK) will allow developers access long-term loans

To support private sector infrastructure projects, the board of IIFC (UK) has also agreed to remove the condition that 80 per cent of the total lending should be for public-private partnership (PPP) projects. This would allow the financing company to meet the requirements of private companies importing machinery from abroad.

Goel said most of the projects before IIFC (UK) were from the private sector but the company had been tied by the stipulation. Of the 56 proposals, only 12 were for PPP.

Business proposals for assistance from IIFC (UK) mainly emanate from sectors having adequate import component of capital equipment and machinery such as power, ports, airports, gas pipelines and fertiliser.

The Reserve Bank of India has provided a $5-billion line of credit to the company for raising in tranches through issue of dollar-denominated bonds for subscription by the central bank. The bonds are issued for 10 years and carry a floating rate of interest. The government also extends a sovereign guarantee to the borrowings.

Goel said with the take-out financing being extended to IIFC (UK), the funds can be exhausted within a year. The line of credit is available till 2014 and so far the company has used only about $800 million.