Steps on the anvil to promote infrastructure funding: Arvind Mayaram

NEW DELHI: The government is working on various steps, including deepening of the bond market and setting up of a Fund, to promote debt and equity investment in the infrastructure sector, a finance ministry official said.

"In the next 2-3 months there will be greater deepening of the equity and bond markets for financing of the infrastructure sector," Economic Affairs Secretary Arvind Mayaram said at a Ficci event here.

On the debt side, the government is making efforts to develop the corporate bond market and encourage Employees Provident Fund Organisation ( EPFO) to invest in infrastructure projects, he said.

Regretting that EPFO is not willing to take risk and participate in equity "as the employees do not have appetite for risk", he said "we need to build the confidence in them that it is safe investment".

On the equity side, Mayaram said in two months the government will come up with Infrastructure Trust Fund, which would be in the nature of Real Estate Investment Trust (REIT).

Under the new structure, underlying revenue of a project will be transferred to a trust which will issue units to investors, including foreign investors who want to buy the units.

Mayaram said it was important to engage overseas pension funds and sovereign wealth funds and that once they come Indian investors would also follow suit.

He said the government is working with the Reserve Bank to ensure that extension of the term of infrastructure sector loan, once it is shifted to Infrastructure Debt Fund (IDF), is not treated as restructuring of loan.

"We are working with RBI to ensure that when IDF steps in, takes over the loan portfolio of a project, it should be incentivised to stretch the debt rather than keep it pari passu with the debt which was given by the banks and it should not be treated as restructuring of the debt," he said.

Mayaram said the debt of IDFs should be stretched for 15-20 years to attract long term pension funds or Sovereign Wealth Funds (SWFs).

Mayaram said once the funding for these projects are taken over by the IDF, the interest rate should come down as the construction risk has already been borne by the banks which have provided funds in the initial stage.

The government has come out with the IDF framework as a new category of financial intermediaries to help garner long-term and low cost funds for the country's infrastructure sector.

The investment need in the sector are estimated at USD 1 trillion in the five-year period ending March 2017 and 50 per cent of it is expected to come from the private sector.

Currently three IDFs are operational -- one promoted by ICICI Bank, another with lead partner IIFCL and third one promoted by IL&FS-LIC.