The finance ministry will soon start figuring out the ideal way to put some of the country’s $196 billion (Rs8.6 lakh crore) of foreign exchange reserves to finance infrastructure projects. The ministry might do this through two wholly-owned foreign subsidiaries of IIFCL that will be created for this purpose, said S.S.Kohli, chairman and managing director, India Infrastructure Finance Co. Ltd (IIFCL)
The country’s forex reserves are maintained with the Reserve Bank of India (RBI).
IIFCL, wholly owned by the Union government, was set up last year to promote public-sector investments and public-private partnerships (PPP) in all areas of infrastructure, except telecommunications.
The company will do this by extending financial support to public sector companies in the infrastructure business, and to PPPs seeking to create infrastructure; RBI will issue foreign exchange loans to IIFCL for this purpose.
One of the subsidiaries will guarantee the fund-raising activities of special purpose vehicles or SPVs (of public sector firms or PPPs) seeking to raise money abroad. “New SPVs find it difficult to raise resources independently,” said Kohli.
The other subsidiary will onlend (or lend money it has borrowed from elsewhere, RBI in this case) to infrastructure firms that are seeking to “import capital goods or meet their need for external borrowings,” he added.
RBI currently earns very little returns on the forex reserves, which are primarily invested in US government bonds. RBI’s rate of return on its loans to IIFCL would have to be worked out, said Kohli.
The proposal to utilize the country’s foreign currency reserves was first made by finance minister P. Chidamabaram, who had suggested that a beginning could be made by using $5-6 billion (of the reserves) for this purpose.
Referring to the $5-billion India Infrastructure Financing Initiative, launched by the Infrastructure Development Finance Corporation (IDFC), IIFCL, and global equity investors Citigroup and the Blackstone group, Kohli said initially IIFCL would invest only $25 million in it.
All the debt funding, he explained, would be channelled through it over the next three years. IDFC, Citi and Blackstone will together invest $250 million in the initiative.
Since its inception in January 2006, IIFCL has finalized lending to 46 projects, out of which partial disbursements have been made in eight cases and financial closures achieved in 30. The total sanctioned amount is Rs8,500 crore.