Government-owned infrastructure financing company IIFCL will start with its credit enhancement in next two months, wherein an infrastructure company could get its rating improved to raise money at a cheaper rate. IIFCL chairman SK Goel told FE that IIFCL will not support funds with standalone rating below BB or BBB. ?We will only entertain projects with a standalone rating of BB or BBB, not below that.? IIFCL will provide credit enhancement facility to funds from March 2011. It is expecting government approval by December. ?We have set aside Rs 3,000 crore in the budget for the pilot project of this scheme,? he said. Further allocation of funds will depend on the response of the first project. The projects approval for credit enhancement will go to the market with IIFCL guarantee. The whole process should not take more than 60 days, assured the chairman IIFCL. Goel said, IIFCL is looking long term infrastructure bonds, for the period of 10- 15 years.
Lower credit rating to the projects seems to be one of the constraints in raising money for the projects. Through credit enhancement, the infrastructure company is seeking funding and IIFCL will share the money saved by raising cheaper funds. ?About 50% of the revenue earned by enhanced rating will be shared between us. However, the maximum that would be shared would be 1% of the interest component. So, if the company raises funds 3% lower than otherwise, 1% would be our commission,? Goel said. IIFCL?s proposal comes at a time when lenders are expressing concern over the sources of finance for infrastructure. Bankers have expressed concern over the capacity constraints of public sector banks in funding big-ticket infrastructure projects.
Talking about capacity constraints, he also said while India was talking about investing a trillion dollars in infrastructure, China, which already has a robust infrastructure, is planning to invest $3 trillion in the next two years. As per the 11th Five Year Plan (2007-2012), an estimated investment of $514 billion in the sector is required. He said soon banks may find it difficult to fund infrastructure projects due to sectoral limits. A bank funds 25% of the capital to a single company in infrastructure and up to 50% of its capital to a group company for infrastructure project.
Goel said there is a need to attract foreign investment through private equity investment and a dedicated infrastructure fund to meet the growing fund demand.