IIFCL may guarantee all infrastructure bonds

IIFCL may guarantee all infrastructure bonds

New Delhi: India’s top state-run infrastructure finance company will likely start guaranteeing all infrastructure bonds from next month, helping generate long-term funds for the sector which could remove an impediment to stronger economic growth.

SK Goel, chairman and managing director of India Infrastructure Finance Company Ltd (IIFCL), said the proposal would likely get the government’s nod by end-September and could attract investments of up to Rs4,000 crore ($854 million) by end-March 2011.

He also said the state-run firm would raise Rs3,000 crore of floating tax-free bonds between October and March after it gets the go-ahead from the finance ministry.

“We will enhance the ratings of the project developers by giving our unconditional guarantees for the repayment of their bonds and their interests," Goel told Reuters in an interview.

“So that they (bonds) become a very attractive and acceptable proposition to the insurance companies, providend funds and pension funds."

Problems related to access to long term funds and regulatory hurdles have marred India’s plans to overhaul its creaky infrastructure, which is seen a drag on achieving a growth pace similar to peer China’s double-digit economic expansion.

Capacity bottlenecks in the Indian economy, including poor infrastructure, are partly responsible for driving up headline inflation in India to near double-digit levels.

India’s underdeveloped domestic bond markets and restrictions on investments of pension and insurance funds ensure infrastructure developers rely mainly upon overstreched banks, which provide only short-term funds.

India aims to spend about $500 billion in the five years to end-March 2012 and is considering doubling the investment figure in the five years from 2012.

IIFCL, which is mandated to provide long-term funds for infrastructure projects, is likely to lend about 400 billion rupees in the current fiscal year to end-March 2011, Goel said.

A Planning Commission report showed the country missed its target for power sector and road additions in the last fiscal year.

SLR Status, Regulator

Critics say ambitious plans would continue to be missed unless fundamental issues such as easier land acquisition, availability of long-term funds and creating a transparent policy framework were resolved.

Goel said India should help investment in the infrastructure sector by allowing banks to float infrastructure bonds which should be eligible for their statutory liquidity and cash reserve requirements.

“It’s mandatory for the banks to put that much of money and if they can put in this way. They can help infrastructure sector indirectly," he said.

The Planning Commission, which charts out five-year plans for the economy, had proposed setting up an $11 billion infrastructure debt fund by

end-December to bridge funding gap for the sector.

However, Goel, whose firm was suggested to be one of the sponsors of the fund, said the fund is unlikely to become a reality in the near term as it would require too many regulatory changes.