Govt exempts infra bonds from credit ratings

In a major fillip to the success of infrastructure bonds, the government has decided to exempt them from getting the credit ratings -- which are mandatory for all the other kinds of bond issuances.

With an aim to encourage the investment flow to the all- important infrastructure sector, the union Budget for the current fiscal had provided for tax benefits in the long-term infrastructure bonds.

Taking forward the issue, the government has begun the process of allowing the issuance of tax-free infrastructure bonds by selected Non-Banking Financial Companies (NBFCs).

However, the grant of permission for issue of such bonds has omitted the requirement of credit ratings, sources said.
    
In any bond issuance exercise, the issuer has to generally get the bond rated by two different credit rating agencies, so that the investors get an idea about the risk profile of the bond.
    
However, no such condition is being put on the tax-free infrastructure bonds to be issued by the selected NBFCs under this programme, sources said.
    
Justifying the decision, a senior official at one of the financial institution that has been granted the status of infrastructure NBFC -- the one who is allowed to issue such bonds -- said that the approval process for such issuers is itself very stringent and only highly-rated NBFCs are being granted the licences.
    
Therefore, it was not necessary to get the bonds also rated by the credit rating agencies.
    
Besides Life Insurance Corporation of India (LIC), Infrastructure Development Finance Company (IDFC) and Industrial Finance Corporation of India (IFCI), such bonds can be issued by an NBFC that gets classified as an infrastructure finance company by banking regulator RBI.
    
Sources, however, admitted that concerns have been raised about the exemption from getting the bonds rated for the issuers other than LIC, IDFC and IFCI. While these three issuers enjoy good credit ratings themselves, the same could not be the case for other players that get to float such bonds after being classified by RBI, a senior official said.
    
The official said that the approval process would make sure that only highly-rated institutions get classified by RBI and the issue could be revisited again if it is felt that a credit rating needed to be mandatory for bonds issued by certain entities.
    
These bonds are getting high attention from policymakers as the investors have been given a tax benefit of Rs 20,000 a year for investing in them to help garner funds for the infrastructure sector.
    
The Planning Commission has made an investment outlay of one trillion dollar on infrastructure in the 12th five-year Plan period, starting 2012, up from a targetted $500 million for the 11th plan period.