IIFCL cover to help cos raise funds at lower rates

KOLKATA: India Infrastructure Finance Company, or IIFCL, said it plans to guarantee infrastructure bonds from December this year to enable companies raise funds at lower interest rates.

A guarantee from IIFCL, which is wholly-owned by the government, would improve credit rating of bonds floated by infrastructure companies. When credit rating improves, companies can raise funds by paying lower interest rates.

“This facility will deepen the bond market for companies engaged in infrastructure development,” IIFCL chairman and managing director SK Goel said. Private infrastructure companies are expected to benefit most from this move.

Mr Goel said IIFCL aims to provide guarantees to infrastructure bonds worth Rs 5,000 crore every year. IIFCL will guarantee long-term bonds with 10 or 15 years of maturity. A company needs to have a minimum ‘BB’ rating to approach IIFCL for a guarantee.

“It will be like a sovereign guarantee as IIFCL is 100% owned by the government,” Mr Goel said. He said if any bond programme gets a guarantee from the state-run enterprise, its rating will improve by several notches.

The infrastructure financing company is set to launch a take-out financing facility next month, whereby it will take out long-term infrastructure loans from banks’ books to create headroom for banks to lend more.

Mr Goel said IIFCL received proposals from Canara Bank, IDBI Bank, Punjab National Bank and Union Bank of India to participate in the inaugural run of the new system.

“But many proposals are getting rejected as these failed to meet the eligibility criteria,” said the CMD. For instance, Union Bank has sent some 42 proposals and just about eight are eligible for the benefit.

IIFCL will consider only the long-term infrastructure loans of one-year-old for the scheme. The loans should have more than six years of term left to become eligible for a transfer to IIFCL’s books.