Finmin plans $300-million fund with British help to lure SWFs, pension funds

Written by Himani Kaushik | New Delhi | Updated: Jun 17 2013, 10:07am hrs
In an attempt to woo sovereign wealth funds (SWFs) and pension funds to Indias infrastructure debt funds (IDFs), the finance ministry is planning to set up a $300-million feeder fund with the help of the UK government.

Sources told FE that a feeder fund, the size of which could be enhanced in future, will be listed on the UK stock exchange, and pool in funds from SWFs and pension funds in order to lend to Indian infrastructure projects at a 3 to 4% interest rate, much lower than the prevailing domestic interest rates.

A senior government official said the fund can finance projects in foreign currency or in rupee denominated debt, depending on who is taking the burden of hedging cost.

In May, finance minister P Chidambaram had said at the sixth India-UK Economic and Financial Dialogue that New Delhi was exploring the possibility of setting up a London-listed feeder fund for IDFs and work with the UK on increasing institutional investments in the sector. India has set a target of investing $1 trillion by 2017 to improve infrastructure.

A team of finance ministry officials along with regulators and three of the IDFs sponsors including IL& FS and IIFCL have gone to London last week to work on the fund modalities. India expects the feeder fund to be set up in the next two months. This is expected to assist IDFs which are struggling to collaborate with SWFs and pension funds on their own.

Sources said that if the feeder fund succeeds, India can pursue similar funds in different countries.

India is facing a huge challenge to finance its vast infrastructure needs. In order to rescue banks which are finding it hard to finance fresh long term investments for infrastructure, the government announced setting up IDFs in 2012, to provide a vehicle for refinancing existing debt of infrastructure projects funded mostly by commercial banks. This creates some headroom for banks to finance new projects. IDFs can be set up either as NBFCs or as mutual funds.