NBFCs, MFs can launch infra debt funds

Taking a cue from government’s interest in raising funds for infrastructure financing, the Securities and Exchange Board of India (Sebi) has allowed both existing mutual funds and non-banking finance companies (NBFCs) to launch infrastructure debt funds (IDFs).

Schemes would invest 90 per cent of its assets in debt securities of infrastructure companies or special purpose vehicles (SPVs) across all infrastructure sectors. Funds could launch close-end schemes that have a maturity of more than five years or it could also introduce interval schemes with a lock-in period of five years. Even companies that have been in the infrastructure financing sector in the last five years can set up a fund.

Under the guidelines, these companies can have a minimum of five investors where no single investor shall hold more than 50 per cent of assets. Strategic investors could invest up to to Rs 25 crore in the fund.

The minimum investment into the fund would be Rs 1 crore with the minimum lot size being Rs 10 lakh for the unit. “Given that, the quantum of funds that can be invested is high, it will attract institutional buyers and high networth individuals (HNIs),” says Amar Ranu, senior manager, third-party products research, Motilal Oswal Wealth Management.

However, one can expect some liquidity since the fully paid units of the funds shall be listed on stock exchanges. Mutual funds launching these funds may issue partly paid units to its investors.

According to the government’s 12th Five Year Plan, it has planned $1-trillion investments in infrastructure projects. It was $500 billion during the 11th Plan (2007-12) and the government has been keen to raise funds through debt instruments like bonds and other routes such as units in the capital markets.Finance Minister Pranab Mukherjee had announced tax breaks for IDFs in his budget speech for this fiscal (2011-12), to attract foreign investments in the various infrastructure projects.

In the earlier guidelines for released by Reserve Bank of India in June 2011, NBFCs who set up these IDFs have been permitted to sell bonds to refinance public private projects, once the construction is complete. This would also help PPPs to attract long term funds at lower costs because of lower risk. However, in terms of attracting investments, IDFs would have to compete with the existing triple AAA rated papers which provide a liquid market.