Back$2 bn debt fund set up for PPP projects
$2 bn debt fund set up for PPP projects
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New Delhi: The finance ministry has brought together three banks and a state-run insurer to set up a $2 billion (around ₹ 10,000 crore) infrastructure debt fund (IDF) to boost lending to roads, ports and other such projects.
This is the first such fund in India that will invest in public-private partnership (PPP) projects.
ICICI Bank Ltd, Citicorp Finance India Ltd (a unit of US-based Citigroup Inc.), Bank of Baroda and Life Insurance Corp. of India (LIC) on Monday signed an accord to set up a non-banking financial company (NBFC) to raise and manage the fund.
“The MoU (memorandum of understanding) has been signed by the partners. It should begin operations from next fiscal. We are hopeful of a good response to the first ever IDF," Mallya said.
ICICI Bank, Bank of Baroda, Citicorp Finance India Ltd and LIC will hold 31%, 30%, 29% and 10% stake, respectively, in the fund, the finance ministry said in a statement.
“The IDF would seek to raise debt capital from domestic as well as foreign resources and would invest in infrastructure projects under the public-private partnership model that have completed one year of operations," the statement said. “The IDF will expand and diversify the domestic and international sources of debt funding to meet the large financing needs of the infrastructure sector, thereby giving an impetus to the creation of the infrastructure necessary to drive India’s growth."
The country’s first IDF has been established by financial institutions with vast experience in infrastructure financing, said Chanda Kochhar, managing director and chief executive of ICICI Bank.
“We have to set up the company and appoint the management team, post which bonds will be issued for raising funds," Kochhar said. “I am confident that it will be able to raise funds from both domestic and international investors."
The IDF would meet the long-term funding needs of infrastructure, finance minister Pranab Mukherjee said in the statement.
As much as $1 trillion would be required for the infrastructure sector in the next five years, half of which would come from the private sector, Mukherjee said.
Jayesh Mehta, managing director and country treasurer (global markets group) at Bank of America Corp, said the IDF should see a good response as it has established promoters. “But providing good returns will be challenging. The returns will be lower but so will be the risks," Mehta said.
The main advantage for a foreign investor in investing in IDF will be the withholding tax advantage. “The investor will only have to pay a withholding tax of 5% as against 20%," Mehta said.
Withholding tax is paid by foreign firms operating in India.
In his 2011-12 budget speech, the finance minister had announced the setting-up of IDFs to accelerate and enhance the flow of long-term debt into infrastructure projects.
To attract off-shore funds into IDFs, Mukherjee had announced that withholding tax on interest payments on the borrowings by the IDFs would be reduced to 5% from 20%. Income of the IDFs has also been exempt from income tax.
The framework for establishing IDFs was announced by the ministry of finance in June. It allowed IDFs to be structured either as an NBFC or as a mutual fund.
remya.n@livemint.com
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