The government, in what will be a major boost to the infrastructure sector, is considering an option to permit ongoing infrastructure projects, which are yet to get financial closure, to use funds that will be raised by India Infrastructure Finance Company Ltd (IIFCL) through issuance of tax free bonds.
“The Planning Commission is in favour of giving special financing for the infrastructure sector, not only to new projects, but also to those which have been awarded but are awaiting financial closure,” a senior government official said. The proposal is being discussed with the finance ministry at present, he added.
As part of the second stimulus package announced last Friday, IIFCL was permitted to raise another Rs 30,000 crore through the issue of tax free bonds. The guidelines for issuing these bonds are now being finalised, the official said.
State-run IIFCL may also be allowed to sell the Rs 30,000 crore tax-free bonds, which will be issued in 2009-10, overseas, he added. If the proposal is accepted, the funds will be raised abroad only after international financial markets stabilise in two to three months.
Meanwhile, the Rs 10,000 crore of tax free bonds announced in the first stimulus package are likely to be issued by early February. But, these funds will be used solely for financing new infrastructure projects.
With the infrastructure sector hard-pressed for finances, funds raised by IIFCL will be used to support a public-private partnership programme of Rs 1,00,000 crore, mainly for highway and port projects.
While interest on the tax free bonds will initially be linked to the cost incurred by IIFCL, it will later be reset and linked to the prevailing rates in the government securities market, the official said. The resetting will take place after the bonds come up for renewal or are re-issued.
The government also hopes that the bond issue by IIFCL will encourage refinancing by banks. “As the bonds carry sovereign guarantee, it will encourage the banking sector to go in for long term funding with assured long term re-financing,” said the official.
To finalise the guidelines for the bonds, IIFCL chairman SS Kohli had met deputy chairman of the planning commission Montek Singh Ahluwalia on Tuesday. Soon after the meeting, Ahluwalia had said, “I am particularly looking at implementing the IIFCL refinancing. We should implement that and announce the details as quickly as possible.”
Booster dose
• The Planning Commission is in favour of giving special financing for the infrastructure sector
• The proposal to permit use of funds to be raised by IIFCL is being discussed with the finance ministry
• As part of the 2nd stimulus package, IIFCL was permitted to raise another Rs 30,000 cr through tax free bonds
• The government hopes that the bond issue by IIFCL will encourage refinancing by banks
