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State-owned Indian Infrastructure Finance Co Ltd expects to get the Government's nod to launch credit enhancement product in the next two months, a development that would see more fund flow for domestic infrastructure projects.
“The proposal is in the final stages of approval. We have been working on a credit enhancement model, along with the (Indian) Government for quite some time. World Bank and Asian Development Bank are also in talks with us for participation,” Mr S.K. Goel, Chairman and Managing Director of IIFCL, told Business Line on the sidelines of a function here.
He was in the city as part of the company's nation-wide road shows in connection with its public issue of long term infrastructure bonds to raise up to Rs 1,200 crore.
PF, Insurance cos
The credit enhancement product is expected to see significant cash flow from institutions such as the pension fund and insurance companies to fund infrastructure projects. The Government has projected a total investment, including from private companies, of Rs 1,025 billion during the 12{+t}{+h} Plan Period, almost double that in the 11{+t}{+h} Plan.
As part of IIFCL's credit enhancement scheme, the company will provide either part or full guarantee to bonds issued by promoters of infrastructure projects to raise funds, which will enhance the credit ratings of these bonds even to AA or higher. As most of these bonds are at present with a lower rating, institutions such as PF and insurance companies are not in a position to buy them.
“Once we provide a guarantee to the bonds and raise the rating, these institutions can buy them, ensuring more fund flow to this sector. PF and insurance companies can earmark about 15 per cent on infrastructure projects. These institutions are estimated to have about Rs 7 lakh crore for infrastructure projects,” Mr Goel said.
World bank participation
The World Bank and Asian Development Bank are also in talks with IIFCL to participate in the scheme by providing additional guarantee so as to further raise the rating tag and ensure better marketability of the infrastructure bonds.
“This will be an additional platform for funding for infrastructure projects. We need new sources of funding for these projects to meet the Government's projections for the 12{+t}{+h} Plan Period,” Mr G.S. Bindra, IIFCL Deputy General Manager, added.
Study
IIFCL is already in the process of completing a study through a consultant to gauge the economic cost of credit enhancement, identifying the timing for introduction of the scheme and develop a viable economic model. The study will also make a demand estimation of credit enhancement and throw up a suitable pricing model.
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