Indian Infrastructure Debt Funds


Ajit Kumar AJIT KUMARWISDOM IAS, New Delhi.

Why:  
 
India needs investment of USD 1 trillion1in new infrastructure between 2012-17.
 
Approximately half of this is to come through private funding.  
 
India offers attractive investment returns that far out-pace returns in developed markets, even on an exchange-parity basis.  
 
Infrastructure needs patient funds but the bulk of infrastructure funding is by commercial banks with mounting Asset Liability mismatches.  
 
Concentration risk of commercial banks to infrastructure lending has gone up.  
 
Take out/re-finance to free up headroom for further bank lending is a thrust area.
 
What:  
 
Infrastructure Debt Funds (IDFs) are investment vehicles to accelerate the flow of long term debt to the sector.  
 
IDFs aims at taking out a substantial share of the outstanding commercial bank loans.  IDFs are set up by sponsoring entities either as Non-Banking Financing Companies (NBFC) or as Trusts/Mutual Funds (MF).
 
Bonds floated by the IDFs can be subscribed to in US dollars or Indian rupees.  

IDFs are regulated by:

 IDF-NBFCs by the Reserve Bank of India (RBI):

IDF-MFs by the Securities and Exchange Board of India (SEBI):

Government has provided an attractive environment for both alternatives: IDF income is exempt from Income Tax, Withholding tax on interest payments on the borrowings by the IDFs reduced to 5% from earlier 20%.  

For IDF-NBFCs, Model Tripartite agreements issued to facilitate finalization of take-out investment between the IDF, the Concessionaire and the Public Authority.

How:

Major global financial entities, quasi-nationals, public and private companies, financial institutions and leading domestic insurance funds have co-sponsored IDFs.  

2 IDF-NBFCs (Infradebt, L&T) and 3 IDF-MFs (IIFCL, IL&FS & SREI) have already commenced operations.  

De-risked projects on offer – government under-writing of debts available.  

Attractive credit-enhancement schemes available.

Potential Investors: Risk averse off-shore Institutional Investors, off-shore High Net-worth Individuals (HNIs), Sovereign Wealth Funds; Pension Funds; Insurance Funds; Endowments; Domestic HNIs and Institutional Investors.

 Regulated Feeder funds with atleast 20% of assets under management by this class of potential investors-allowed to invest in IDFs.



Sunday, 02nd Oct 2016, 10:37:26 AM

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