The government plans to stand guarantor to public-private partnership projects in the infrastructure sector financed by the proposed infrastructure debt funds (IDFs), along with the sponsors/investors of these funds. The move is to stimulate foreign pension funds and insurance companies to invest in IDFs, which would be set up either as trusts (mutual funds) or companies sponsored by banks, NBFCs and infrastructure finance companies.
IDFs are expected to play a key role in making long-term capital available to infrastructure projects.
According to government sources, the finance ministry has proposed that the Planning Commission prepare a tripartite agreement under which guarantee to the PPP project, post the date of completion, is shared by sponsors/investors and the government. The risk weightage prescribed by the ministry to the fund is 50%, while the remaining risk will be borne by the sponsor/investor and government under the tripartite arrangement.
On this subject, the ministry officials have also had a meeting recently with RBI deputy governor Anand Sinha. If the IDF assumes the form of company, then it will have to operate under RBI guidelines and an IDF as a mutual fund will be subject to Sebi norms. While market regulator Sebi has announced the framework for the trust-based IDF, the central bank is yet to finalise the framework for the fund in the form of company.
The sources said the finance ministry and RBI are also deliberating on key issues like exposure limits of the banks and definition of ?net owned funds? for the IDF. The ministry has asked RBI to change the definition of ?net owned funds? for IDF companies as the current definition does not include debt raised. It has asked RBI to include at least 50% of the debt raised by the IDF in its net owned fund, so that it can raise more funds. This will raise the leveraging power of these funds substantially, sources said. So far, RBI has shown reluctance in increasing the exposure limits of the banks to the infrastructure sector as it sees it as a systematic risk to the banking sector due to possible asset-liability mismatches.
A source said that RBI will soon finalise the framework for IDFs as companies once it works out these modalities with the government, possibly before finance minister Pranab Mukherjee leaves for Washington on September 21 to hardsell the IDF concept to foreign pension and insurance funds. During the recent India visit of US secretary of state Hillary Clinton, she had promised to organise a meeting of Mukherjee with big funds.
Mukherjee, in his budget speech, had proposed to create special vehicles in the form of notified infrastructure debt funds. In June this year, the ministry issued detailed guidelines for setting up IDF.
India has huge infrastructure funding needs and intends to spend nearly $1 trillion in five years starting 2012-13 to build new roads, ports, highways and airports, which are key to sustained, rapid economic growth.
In the company form, an IDF will have to raise resources through issue of either rupee or dollar-denominated bonds of a minimum five-year maturity. It would invest in debt securities of only public-private partnership projects, which have completed at least one year of financial operation.
