State-owned Indian Infrastructure Finance Company ltd. (IIFCL) expects to get the government?s nod to launch credit enhancement product by May end, a development that would see more fund flow for domestic infrastructure projects.
Credit enhancement product is aimed at lifting up the ratings of bond issued by infrastructure companies who on their own balance sheet are unable to get better ratings. Better ratings is important for companies to get good subscription on their issues.
?The proposal is in the final stages of approval. We have been working on a credit enhancement model, along with the government for quite some time. World Bank and Asian Development Bank are also in talks with us for participation,? SK Goel, chairman and managing director of IIFCL told FE.
The company?s board is meeting on May 9 to give its final approval to the scheme. The credit enhancement scheme is expected to operationalise by May end.
As part of the scheme, the company will provide partial guarantee to bonds issued by promoters of infrastructure projects to raise funds, which will enhance the credit ratings of these bonds even to AA or higher. Depending on the viability of the project, the state finance company will provide guarantee in the range of 30-60%. As most of these bonds are at present with a lower rating, institutions such as pension funds and insurance companies are not in a position to buy them.
IIFCL is planning to support eight or nine projects in this fiscal with its new product. The company has set the initial target for the scheme as R5,000 crore.
Along with this, talks are on to give IIFCL the status of Infrastructure Finance company. Goel said, ?the finance ministry and RBI have given their consent but planning commission has raised an objection. The Cabinet is likely to consider this shortly?.
The finance ministry had mooted a proposal in 2010 to convert the wholly-owned government company into a non-banking finance company, or NBFC, to help it access foreign funds, which it is unable to do so at present. However, the planning commission has objected to the proposal as it feels such a move will undermine the very nature of IIFCL and defeat the purpose for which it was set up ? to provide cheap long- term finance.