The decks have been cleared for the launch of country’s first credit enhanced bond offering by an infrastructure project company.
India Infrastructure Finance Company Ltd (IIFCL) on Wednesday signed the guarantee agreement for the first pilot under its much talked about credit enhancement scheme.
The guarantee agreement was executed today between IIFCL and GMR Jadcherla Expressways at an event held in the Capital.
This would pave the way for GMR Jadcherla Expressways Ltd, which is the infrastructure project company, to raise low-cost funds, especially from insurance companies, through a bond offering.
By this agreement, IIFCL has provided partial credit guarantee to the upcoming bond offering of GMR Jadcherla to enhance its rating to AA level, thus making it eligible for investments by institutions like insurance companies and pension funds.
GMR Jadcherla Expressways today paid a process fee of Rs 36.4 lakh to IIFCL for the credit guarantee. The bond issue is expected in the coming days — most likely after RBI’s monetary policy review meet on January 29.
The Asian Development Bank is extending backstop guarantee by sharing the risks with IIFCL.
In the absence of credit enhancement, insurance companies and pension funds are unable to participate in the debt funding of infrastructure projects as the ratings of most of the infrastructure companies in initial years remain around BBB levels.
By regulation, insurance companies are allowed to invest in debt instruments rated AA or above.
Speaking on the occasion, D.K.Mittal, Financial Services Secretary, said that the initiative would help in the development of a bond market for infrastructure sector.
It would also help the commercial banks in managing the challenges like asset-liability mismatch and exposure constraints which they face in long-term infrastructure lending, Mittal said.
Infrastructure projects are now predominantly dependent on commercial banks for their funding requirements.
This credit enhancement initiative would also help the infrastructure project developers in freeing up their exposures with banks. This would create space for fresh investments by banks through lending for creation of new infrastructure assets, Mittal said.
S.K.Goel, IIFCL’s Chairman & Managing Director, said that IIFCL was actively considering more transactions under its credit enhancement scheme.