Norms for infrastructure debt fund cleared; it may be trust or company

In order to raise long-term resources for funding the infrastructure sector, the government on Friday said Infrastructure Debt Fund (IDF) could be set up either as a company or trust.

The IDF, which was proposed by Finance Minister Mr Pranab Mukherjee in Budget 2011-12, is aimed at accelerating and enhancing flow of long term debt for funding the ambitious programme of infrastructure development in the country. The requirement of infrastructure in the 12th Plan has been pegged at $1 trillion.

“An IDF may be set up either as a trust or company...A trust based IDF (Mutual Fund) would be regulated by SEBI; an IDF set up as a company (NBFC) would be regulated by RBI,” the Finance Ministry said in a statement.

Pointing out that IDF is a novel attempt to address the issue of sourcing of long term debt, it said the structure of the fund would be reviewed for efficacy and refinement.

The fund would try to garner resources from domestic and off-shore institutional investors, especially insurance and pension funds. Banks and financial institutions would be allowed to sponsor IDFs.

Elaborating on the structure of IDF as a company, the release said it could be set up by NBFCs or banks, with a minimum capital of Rs 150 crore. Such a fund would be allowed to raise resources through rupee or dollar denominated bonds of minimum five year maturity. These bonds could be traded among the domestic and foreign investors.

Company based IDFs would be allowed to fund projects in public-private partnership (PPP) which have completed one year of commercial operations.

Potential investors in this category, include off-shore and domestic institutional investors, high networth individuals and non-resident Indians.

As regards the trust-based IDFs, the ministry said the fund could be sponsored by a regulated financial sector domestic entity. It would have to invest 90 per cent of its assets in the debt securities of infrastructure companies or SPVs across all infrastructure sectors.

Minimum investment by trust-based IDF would be Rs 1 crore with Rs 10 lakh as minimum size of the unit. The credit risks associated with underlying projects will be borne by the investors and not by IDF, but in case of company-based IDF, the fund would bear the risk.

Finance Ministry said that IDF being a pass-through vehicle is easily workable if set up as a Trust. However, since a Trust cannot issue bonds or undertake credit enhancement and cannot get withholding tax benefits, an IDF would also have to be allowed as a company.