IIFCL seeks $12-billion ADB credit enhancement facility

Written by Raj Kumar Ray | New Delhi | Updated: Nov 16 2012, 09:34am hrs
State-run India Infrastructure Finance Company (IIFCL) has approached the Asian Development Bank (ADB) for a $12-billion credit enhancement facility that could help the firm complete several long-gestation infrastructure projects held up due to funding problems. The facility could be valid for a period of three years.

The Centre has already given an in-principle nod to IIFCL to start a pilot scheme for credit enhancement facility under which it will provide a partial credit guarantee to infrastructure projects to enhance their bond rating to "AA" and make them eligible for financing from insurers and pension funds. At present, infrastructure SPVs and projects face funding problems from the debt market due to the absence of credit rating.

The move to allow partial credit guarantee by IIFCL will not only help project developers but also the corporate bond market. The problems in reforming the corporate bond market was discussed last week, at the Financial Stability and Development Council, with finance minister P Chidambaram promising to take up the issue with top corporate houses.

While IIFCL may start with $1 billion for the pilot project in December, it is trying to raise more resources as demand for such funds will pick up in the coming years. India needs close to $1 trillion to ramp up its creaky infrastructure.

The IIFCL was set up as an SPV to facilitate infrastructure funding given the mismatch between the tenure of normal bank loans and the long-gestation infrastructure projects. IIFCL is mandated to mobilise resources from various sources, including ECBs, and also allowed to tap into India's forex reserves to reduce the cost of finances.

"We have sought $12 billion from ADB for the credit enhancement facility over the next three years," IIFCL chairman SK Goel told fE. ADB's board of directors have agreed to raise the budget for the Indian lender, but a final approval is awaited, Goel added.

Time and cost overrun due to delays in environment clearances, difficulties in land acquisition, lack of fuel supply agreements, high-borrowing costs and inadequate long-term funds are making infrastructure projects difficult.

While the government is trying to address the problems of forest clearances and other bureaucratic delays by setting up a nodal agency -- National Investment Board it has asked infrastructure financiers such as IIFCL to look for long-term funds and help in the development of corporate bond market.

With economic slowdown and rising non-performing assets, banks are wary of funding infrastructure projects beyond 5-7 years, fearing a mismatch in assets and liability. While this forces infrastructure companies to pile up debt in the initial years, delay in completion makes the project unviable.