IIFCL set to back long-term bonds of infra firms

Scheme to help sector attract funds from pension and insurance companies.

State-run India Infrastructure Finance Company Ltd (IIFCL) hopes to launch a credit enhancement scheme by December. Under the scheme, it will guarantee long-term bonds of infrastructure companies.

The scheme would help the infrastructure sector attract funds from pension and insurance companies, with IIFCL acting as a facilitator, said Chairman and Managing Director SK Goel.

Over one year, IIFCL is planning to guarantee bonds worth Rs 5,000 crore. The fee charged by IIFCL for this will depend on the concessional rate at which the company is able to raise money. For example, if the company usually raises funds at 11 per cent and raises money through the bond issue at eight per cent, the fee charged will be 1.5 per cent.

Six banks to participate in take out finance
IIFCL is planning to launch on October 12 a takeout financing scheme to boost infrastructure funding, with participation from six public sector banks. The government had set a target of take-out financing worth Rs 25,000 crore, and by March 2011, IIFCL expected it to be about Rs 3,000 crore, Goel said on the sidelines of a banking summit here on Monday.

The six banks that will be participating in the scheme are Punjab National Bank, IDBI Bank, Union Bank of India, Canara Bank and Andhra Bank.

Under takeout finance, the bank financing the project has an arrangement with a financial institution for transferring to it the outstanding after a certain period. IIFCl would issue tax-free bonds worth Rs 3,000 crore in the last quarter of the present financial year.

IIFCL had surplus funds of about Rs 20,000 crore, which it expected to deploy through refinance, as demand was picking up due to rising interest rates, said Goel.

Infrastructure debt fund unlikely to start soon
The proposed $11-billion infrastructure fund was unlikely to start soon, as the there were issues pertaining to subscription, management and amendment in laws, said Goel.

The Planning Commission had recommended setting up an $11-billion infrastructure fund to build ports, roads, airports and telecommunication networks.

“I don’t think the fund can be launched soon, as it requires a large number of amendments, like in the Banking Regulation Act,” said Goel.

The Planning Commission is in talks with State Bank of India, the country’s largest lender, to anchor the fund.