The London-based arm of India Infrastructure Finance Company Ltd (IIFCL) has so far disbursed $400 million to Indian infrastructure companies for meeting their capital expenditure outside India. The level of disbursement is expected to go up to $600 million by March-end, Mr S.K.Goel, Chairman and Managing Director of IIFCL, told Business Line here.

So far, IIFCL-UK, which was set up in February 2008 as a wholly owned subsidiary of IIFCL, has sanctioned loans to the tune of $2 billion across 17 projects. Disbursement of loans began in August 2009. Mr Goel also said the UK arm would endeavour to completely utilise the $5-billion line of credit provided by the Reserve Bank of India over a three-year period.

“We have a target of three years…. It is only one year that has gone by since the line of credit was provided…Let us see,” Mr Goel said, when asked about the timeline within which the entire line of credit could be utilised.

$5-b credit

The RBI has provided a line of credit of $5 billion. Under this arrangement, IIFCL could issue US dollar-denominated bonds with tenure of 10-years to RBI. The bonds carry a coupon equivalent to the London Inter-bank offered rate (LIBOR) and the resources raised through the bonds issued to RBI would be used to on-lend to Indian infrastructure companies for meeting their capital expenditure outside India.

The UK subsidiary supplements IIFCL's role and functions by utilising part of India's foreign exchange reserves for creation of infrastructure assets. This is sought to be achieved by way of lending to Indian infrastructure companies implementing infrastructure projects. But, the lending would solely be for capital expenditure outside India.

The projects so far financed by IIFCL's UK subsidiary include two ultra-mega power projects, metro rail projects, three power projects, a port cargo handling project and a gas pipeline project.

Credit enhancement

Meanwhile, IIFCL is looking to offer credit enhancement services to support infrastructure companies, both in the public and private sectors. “It (credit enhancement) is at discussion/consultation stage at government level. We basically have two options. Either we could do it on our own or partner with multilateral bodies like ADB. The final decision has to be taken by the Government,” Mr Goel said.

Through credit enhancement, a lender is provided with reassurance that a borrower will honour the obligation through additional collateral or third party guarantee. It reduces credit/default risk of a debt, thereby enhancing credit rating and lowering the interest rates on the debt.

Till end September 2010, IIFCL, which is entirely owned by the Government, has disbursed about Rs 11,133 crore in loans. The lion's share of disbursement has gone to power (Rs 4,652 crore) and road (Rs 3,934 crore) sectors. Disbursements have also been made to airports, port and urban infrastructure projects.

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