Irdai proposes allowing insurers to invest 20% in debt of public infra SPVs

Irdai noted that once infrastructure projects begin commercial operations, their cash flows become more predictable and regulated, significantly reducing funding risks

The Insurance Regulatory and Development Authority of India (Irdai) has proposed permitting insurers to invest up to 20 per cent of their funds in debt instruments issued by public limited special purpose vehicles (SPVs) operating in the infrastructure sector.

 

The rider is that the project must have commenced commercial operations and cash flows should have stabilised.

 

Experts said it is likely to open new opportunities and boost investment in the sector.

 

According to Aneesh Srivastava, executive director (ED) & chief investment officer (CIO), Star Health and Allied Insurance, it is a good investment opportunity for insurers.

 

“The proposed circular has done away with the requirement of parent company guarantee for investing in infrastructure SPV. We will be investing only in those companies which are operational with stable cash flows,” he said.

 

He added that risk in infrastructure companies is when they are at construction stage. Once they start generating stable cash flow, risk reduces substantially, he said. 

 

“There is good demand for such companies and the infrastructure segment in the country offers a lot of opportunities.  Earlier, we were finding it difficult to invest because guarantees were not available from parent entities. If that is done away with, we will explore investing there,” he further said.

 

According to the draft proposal, the proceeds from such debt issuances must be used exclusively to refinance existing debt or loans of the SPV. The underlying debt must be classified as standard in the lender’s books, and the issued instruments must carry a minimum credit rating of AA to qualify as approved investments.

 

The regulator noted that once infrastructure projects begin commercial operations, their cash flows become more predictable and regulated, significantly reducing funding risks.

 

At this stage, SPVs typically possess both operating assets and stable revenue streams, making them suitable for long-term investors.

 

Irdai added that such projects often witness the exit of original lenders, creating opportunities for long-term investors like insurers.

 

These assets offer attractive risk-adjusted returns and often benefit from near-monopolistic market positions.

 

They carry low technological obsolescence risk, aligning well with insurers’ long-term liability profiles and asset-liability management needs.

 

The regulator has invited comments and suggestions from stakeholders within 21 days of the circulation of the draft.

 

It is particularly on adequacy of the proposed framework to support SPV funding structures in viable infrastructure projects and the disclosures required to ensure adequate in-built risk mitigation.