No visa for govt-backed debt papers
Infrastructure Finance Company (IIFCL), the special purpose vehicle floated by the government to finance infrastructure projects, will not able to float such papers in foreign markets following objections by the Reserve Bank of India.
By Subhomoy Bhattacharjee, TNN |
NEW DELHI: Quasi-sovereign debt papers from India will not hit the international markets in a hurry. India Infrastructure Finance Company (IIFCL), the special purpose vehicle floated by the government to finance infrastructure projects, will not able to float such papers in foreign markets following objections by the Reserve Bank of India.
This would have been the first time a government guaranteed paper would have entered the portfolio of investors abroad. Instead, RBI said there is enough headroom available under the external commercial borrowings (ECB) window, which IIFCL can tap.
As a government-sponsored institution, IIFCL will enjoy priority over other competing companies. ECB rules permit automatic clearance from RBI for ECB loans up to $500m. It has already got government’s approval to raise Rs 500 crore from the domestic debt markets.
According to RBI, since IIFCL is a new company, borrowing costs from abroad could be high, despite the sovereign guarantee. This could, in turn, reflect adversely on the government’s credit rating in international markets, and also defeat the purpose of securing cheap finance to fund infrastructure projects.
Instead, once the firm had established its credentials, the sovereign route could be explored. For ECBs, the government does not give any guarantee, except for covering the risk of currency fluctuations to an extent.
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IIFCL was set up in January to provide long-term debt finance for infrastructure projects in public and private sector, as per a plan announced in Budget 2005. For each fiscal, the government sets the borrowing limit for the company. It is Rs 10,000 crore in ’06-07. Infrastructure projects in specified sectors include roads, ports, airports and tourism. An inter-institutional group of banks and financial institutions appraises infrastructure projects to be financed by IIFCL. IIFCL will then lend funds directly to eligible projects to supplement other loans from banks and financial institutions.
The company was also meant to partially use the mounting forex reserves with the country. It was expected that RBI would use a portion of the reserves to buy some of the debt papers. RBI now deploys all its foreign exchange abroad.
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