Core sec funding SPV not in tax haven
The proposed offshore special purpose vehicle (SPV) for funding infrastructure projects would be set up in a country which has a strong regulatory framework in place.
By TNN |
NEW DELHI: The proposed offshore special purpose vehicle (SPV) for funding infrastructure projects would be set up in a country which has a strong regulatory framework in place. The government has dropped plans to set up the SPV in a tax haven. The SPV will be a wholly-owned subsidiary of the India Infrastructure Finance Company Ltd. IIFCL is wholly owned by the government of India and was set up in early 2006. The SPV will be funded from India’s burgeoning forex reserves, which now exceed $200 billion.
“The general view is that the SPV should be set up in a country which has a strong regulatory framework in place,” a finance ministry official said. However, the official said care would be taken that the special purpose vehicle is set up in a country where it does not have to face mandatory local lending norms. In some European countries, it is mandatory for financial institutions to dedicate a percentage of total lending to local projects.
A decision in this regard was taken at a meeting attended by finance ministry officials and representatives from the RBI early this week. The proposed SPV will finance capital goods imports by Indian companies for infrastructure projects in the country. The SPV would also finance Indian companies that acquire infrastructure assets for use in India. For example, an oil company acquiring an oil block to supply oil to India or investing in a power plant in a neighbouring country to supply power to India would qualify for receiving loans from the SPV. The exact format as to how this would be done are still being worked out, he said.
The government will provide full guarantee to the RBI for the principal and minimum interest that it would have earned on the reserves. While the government would provide the initial corpus, India Infrastructure Finance Company will fund SPV’s equity base and meet other regulatory provisions.
The RBI, which initially had concerns about the setting up of the SPV, has given its go-ahead to the SPV which will start off with $5 billion in its kitty. This $5 billion will come from India’s forex reserves. The government, which had proposed to set up two such SPVs, has decided to go ahead with only one at present.
“The general view is that the SPV should be set up in a country which has a strong regulatory framework in place,” a finance ministry official said. However, the official said care would be taken that the special purpose vehicle is set up in a country where it does not have to face mandatory local lending norms. In some European countries, it is mandatory for financial institutions to dedicate a percentage of total lending to local projects.
A decision in this regard was taken at a meeting attended by finance ministry officials and representatives from the RBI early this week. The proposed SPV will finance capital goods imports by Indian companies for infrastructure projects in the country. The SPV would also finance Indian companies that acquire infrastructure assets for use in India. For example, an oil company acquiring an oil block to supply oil to India or investing in a power plant in a neighbouring country to supply power to India would qualify for receiving loans from the SPV. The exact format as to how this would be done are still being worked out, he said.
The government will provide full guarantee to the RBI for the principal and minimum interest that it would have earned on the reserves. While the government would provide the initial corpus, India Infrastructure Finance Company will fund SPV’s equity base and meet other regulatory provisions.
The RBI, which initially had concerns about the setting up of the SPV, has given its go-ahead to the SPV which will start off with $5 billion in its kitty. This $5 billion will come from India’s forex reserves. The government, which had proposed to set up two such SPVs, has decided to go ahead with only one at present.
Download
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
