In a bid to incentivise financial institutions that have launched infrastructure debt funds (IDF), the finance ministry is planning to reduce the guarantee fee paid to the authorities under tripartite agreements from 3% to 0.5% of the value of the bonds. The ministry is also working to provide public financial institution (PFI) status to IDFs which will facilitate easier loan recovery.
Currently, the debt funds pay the authority (government organisation) 3% of the nominal value of bonds or the principal outstanding against such bonds, which is higher by way of a guarantee fee. ?A higher guarantee fee makes bonds less attractive,? a senior government official said.
The governmental authority charges a guarantee fee under the tripartite agreement, an understanding entered into between the concessionaire, the project authority (government) and the IDF. The shared guarantee ensures early operationalisation and easier financing of the these funds.
IDFs were announced in the Union Budget for 2011-12 and are aimed at accelerating and enhancing the flow of long-term debt for funding infrastructure projects. IDFs are being floated to provide a vehicle for refinancing the existing debt of infrastructure projects funded mostly by commercial banks.
The government is working on various proposals including giving public financial institution (PFI) status to IDFs under the Companies Bill 2012. In an event of a default, they can recover their loans under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), 2002.
This comes even as government trying to resolve issues pertaining to R7 lakh crore worth infrastructure projects stalled due to various clerances choking the banking sector. So far, four IDFs have been launched. IL&FS Infra Asset Management (IAML), which has already identified 10 to 12 projects and together with a consortium of eight public sector banks, has mopped up $350 million from overseas and domestic financial institutions such as Life Insurance Corporation (LIC). Ramesh Bawa, CEO, IFIN said, ?We are targeting an initial corpus of approximately $1 billion and hope to increase it to $5 billion under management in the medium term.?
The IIFCL-led IDF has tied up R2,000 crore with a consortium of 15 banks and decided to finance three projects including L&T road project worth R200 crore in Gujarat, a power plant in Chhattisgarh worth R250 crore and a water supply project.