NEW DELHI: State lender India Infrastructure Finance Company (IIFCL) is set to announce a $1-billion infrastructure debt fund through mutual fund route on April 10. With the funding of R1,350 crore, IIFCL will own 26% stake in the fund while IDBI Bank will have 14% and Life Insurance Corporation 10% stake.
IIFCL chairman and managing director SK Goel told FE that Asian Development Bank, HSBC and Barclays will contribute the remaining 50% in the fund. IIFCL along with LIC and IDBI will be contributing $500 million while ADB will be putting in $250 million and Barclays and HSBC will be contributing $150 million each. Such infrastructure debt funds (IDFs) are expected to address the long-term financing needs of infrastructure projects and fast track them.
IIFCL has already got provisional approval from Sebi in March and expected to receive final approval in a day or two. Sources said the formal announcement about the IIFCL-led infrastructure debt fund is expected by finance minister Pranab Mukherjee on April 10. The fund is expected to be operational by April end.
An IDF can be set up as a trust or as a company. A trust-based IDF is a mutual fund that issues units while a company-based fund is in the form of a non-banking finance company (NBFC) issuing bonds. While mutual funds are regulated by Sebi, NBFCs are regulated by RBI.
This is not the first infrastructure debt fund announced in the country. Earlier an IDF was launched in March via a joint venture led by ICICI Bank, Bank of Baroda, Citi Financial and LIC. The total fund size is planned at R10,000 crore and it will start operations soon. IDFC Asset Management has also applied to Sebi for IDF through the MF route. The company plans to raise R5,000 crore via the proposed issue.
Finance minister Pranab Mukherjee, in the 2011-12 Budget, had announced setting up of IDFs to accelerate and enhance the flow of long-term debt to infrastructure projects for funding the government’s infrastructure development programmes.
Infrastructure projects, given their long pay-back period, require long-term financing to be sustainable and cost effective.
However, banks are unable to provide long-term funding given their asset-liability mismatch.
Moreover, banks are also approaching their exposure limits.India needs $1 trillion of investment in infrastructure sector in the 12th Five-Year Plan.
Infrastructure debt funds are expected to provide long-term low-cost debt for infrastructure projects by tapping into savings such as insurance and pension funds. By refinancing bank loans of projects, IDFs are expected to take over a fairly large volume of the bank debt that will release an equivalent volume for fresh lending to infrastructure projects. IDFs may also help accelerate the evolution of a secondary market for bonds, which is lacking depth.