our banking and financial services giants — ICICI Group, Life Insurance Corporation, Citicorp Finance India and Bank of Baroda — joined hands to launch India’s first infrastructure debt fund (IDF) to be structured as a non-banking finance company (NBFC).
This company will have an initial equity share capital (tier-I) of Rs 300 crore. Taking into account the tier-II capital and the ability to borrow, it can set up a fund of about $2 billion,
As for the equity contribution, ICICI Group will take 31 per cent stake, Bank of Baroda 30 per cent, Citicorp Finance India 29 per cent and LIC 10 per cent.
While ICICI Bank will take a stake of 30 per cent, an ICICI Group entity will take the other 1 per cent. Citicorp Finance India is a wholly-owned entity of Citigroup.
“The Indian banking sector by itself will simply not be able to finance India’s infrastructure needs. Our IDF will have an extraordinary opportunity to act as a catalyst to channelize domestic savings and global liquidity to create an alternate pool of capital. We expect to attract capital from both local and international debt investors alike.
The funds will be invested in public-private projects in ports, railways, roads, highways and other such infrastructure projects, which have already commenced commercial production. Implementation risk will hardly be there and that will be the investment profile of this fund.
The IDF managers would not only have expertise in infrastructure finance, but also the ability to access domestic and global funds.
It will attract participation from entities that have so far not participated in the infrastructure development of India — long-term insurance and pension funds domestically and globally and many other global funds, including sovereign wealth funds.
Model Tripartite Agreement for Infrastructure Debt Fund
The Cabinet Committee on Infrastructure (CCI) approved the Model Tripartite Agreement for Infrastructure Debt Funds (IDFs).
The CCI also approved the constitution of empowered Inter-Ministerial Group to approve sector-specific or project-specific modifications.
This Model Tripartite Agreement will facilitate early operationalization of the IDFs.
Setting up of Infrastructure Debt Funds (IDFs) was announced in the Union Budget for 2011-12. These are aimed at accelerating and enhancing flow of long term debt for funding infrastructure projects in the country. They will also act as a catalyst to channelize domestic savings. IDFs would provide a vehicle for refinancing the existing debt of infrastructure projects which are funded mostly by commercial banks. This would create fresh headroom for commercial banks and enable them to take up a larger number of new infrastructure projects.
An IDF can be structured either as a company or as a trust. If set up as a trust, it would be regulated by SEBI under the Mutual Fund Regulations. If set up as a company, the IDF would be structured as a Non-Banking Finance Company (NBFC) and will be under the regulatory oversight of RBI. Guidelines with enabling provisions have already been issued by the Reserve Bank of India and SEBI.
An IDF-NBFC would issue either rupee or dollar denominated bonds and invest only in debt securities of Public Private Partnership projects which have a buy-out guarantee and have completed at least one year of commercial operations. Such projects are expected to be viewed as low-risk investments and would, therefore, be attractive for risk-averse insurance and pension funds.
Regulations issued by RBI provide that a Tripartite Agreement, which shall be binding on all the parties thereto, will be entered into between the Concessionaire, the Project Authority and the IDF.
There is also scope to attract foreign institutional investors in the debt part of the fund