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The Asian Development Bank (ADB) on Friday launched a first-of-its-kind $128-million facility to provide partial credit guarantee on rupee-denominated bonds issued by Indian companies to finance infrastructure projects.
Providing partial guarantee will boost the credit rating of a typical infrastructure project from BBB- or A to AA. It would lower the cost of borrowing for the special purpose vehicle (SPV).
This would also pave the way for cash-rich insurance and pension funds to buy the bonds issued by the SPV, said Vivek Rao, Senior Finance Specialist, South Asia Department, ADB, from Manila today.
As per the current regulatory norms, insurance and pension funds can be deployed only in instruments with a minimum AA credit rating.
Simply put, ADB will through this new facility take a part of the guarantee risk.
To start with, ADB will provide partial credit guarantee alongside India Infrastructure Finance Company Ltd (IIFCL). ADB is open to partnering with other non-banking financial institutions for providing the same co-guarantee facility, said Rao.
New facility
The first company that is likely to benefit from this new ADB facility is a special purpose vehicle of GMR Group. Indications are that the bonds would be floated by GMR Jadcherla Expressways. “We expect the first transaction to be completed in the next two months,’’ said ADB officials.
ADB’s new facility will be open for a time period of three years by when the amount allocated is expected to be fully utilised. India is the first country where ADB is launching the partial credit guarantee facility. “We believe India has the right conditions for the launch of this product,’’ Rao said
Most of the funds earmarked for this facility are likely to be used towards NHAI-road projects and also power projects, according to Siddartha Shah, Senior Investment Specialist, Private Sector Operations Department, ADB, Manila.
Rao said that ADB would be able to leverage 4-8 times the $128 million allocated under the facility and support infrastructure bonds worth $600 million to $1 billion.
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