ADB in talks with banks for infra debt fund foray

Asian Development Bank (ADB) is in talks with banks for a possible participation in the infrastructure debt fund (IDF) floated by them through the NBFC route.

“If we are participating in IDFs, the only option is NBFC type. We are in talks with several banks, but we have not decided anything as yet,” Hun Kim, Country Director, ADB, said.

The current regulatory framework allows IDFs to be floated either through the Non Banking Finance Company (NBFC) route or through the mutual fund route.

Kim made it clear that ADB is not keen on participating in the IDF proposed by India Infrastructure Finance Company Ltd (IIFCL) as the latter is looking to set it up through the mutual fund route.

Credit enhancement

He also said that ADB would, for the moment, focus on making the IIFCL’s credit enhancement scheme a success. “We are working with IIFCL on a pilot on credit enhancement. Let us issue one bond first. Test the market and gain the experience (for credit enhancement),” Kim said. Stating that long-term debt financing is very important for infrastructure, Kim said ADB would extend support either directly to IDF or provide line of credit or extend bond support for credit enhancement.

Guarantee pact

IIFCL had in mid-January signed the guarantee agreement for the first pilot under its much talked about credit enhancement scheme.

The guarantee agreement was executed between IIFCL and GMR Jadcherla Expressways, paving the way for the latter to raise low cost funds, especially insurance companies, through a bond offering.

By this guarantee agreement, IIFCL had provided partial credit guarantee to the upcoming bond offering of GMR Jadcherla so as to enhance its rating to AA level.

This would make it eligible for investments by institutions like insurance companies and pension funds.

srivats.kr@thehindu.co.in

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