| Genesis
The importance of infrastructure for sustained economic development and influencing the living standards is well recognized. Yet millions of people across the world, lack access to drinking water, proper sanitation, electricity and communication network. High transaction costs arising from inadequate and inefficient infrastructure prevent the economies from realizing their full growth potential.
In the Indian context, while there has been some progress in attracting investment into infrastructure, the total annual capital investment on infrastructure still hovers around 4 percent of GDP, as compared to over 10 percent share in some other Asian countries. The dynamics of the Indian economy warrant a strong push to infrastructure. Hon’ble Finance Minister of India, while presenting the Union Budget for FY 2006, acknowledged the need and significance of building adequate infrastructure in the country and made the following announcement
“The importance of infrastructure for rapid economic development cannot be overstated. The most glaring deficit in India is the infrastructure deficit Investment in infrastructure will continue to be funded through the Budget. However, there are many infrastructure projects that are financially viable but, in the current situation, face difficulties in raising resources. I propose that such projects may be funded through a financial Special Purpose Vehicle……. The SPV will lend funds, especially debt of longer-term maturity, directly to the eligible projects to supplement other loans from banks and financial institutions. Government will communicate the borrowing limit to the SPV the beginning of each fiscal year.”
Government of India accordingly approved a Scheme for Financing of Infrastructure through a Special Purpose Vehicle called India Infrastructure Finance COmpany Ltd (IIFCL)., broadly referred to as SIFTI. Details of the Scheme are available on www.infrastructure.gov.in and also on this website.
Setting up IIFCL
India Infrastructure Finance Company Limited (IIFCL) was incorporated on January 5, 2006 under the Companies Act 1956 as a wholly Government owned Company. The authorized capital of the Company is Rs. 1,000 crore of which, paid up capital, at present, is Rs. 300 crore. Besides, the borrowing programme of the Company would have sovereign support, wherever required.
Financial Assistance by IIFCL
IIFCL funds commercially viable infrastructure projects in the country in accordance with the SIFTI. Broadly IIFCL will fund such projects by way of:
- Long Term Debt
- Refinance to banks and financial institutions for loans with tenor of more than 10 years, granted by them.
- Any other method approved by Government of India
Some other salient features of financing and development include:
- Loans assistance from IIFCL ordinarily shall not exceed 20 percent of the project cost;
- A project awarded to a private sector company through competitive bidding for development, financing and construction through Public Private Partnership(PPP) shall have overriding priority under SIFTI. A PPP project has been defined as a project based on a contract or concession agreement between a government or a statutory entity on one side and a private sector company on the other side, for delivering an infrastructure service on payment of user charges.
- IIFCL would rely on project appraisal by the lead bank and not normally subject the project to an independent appraisal
Scope of Activities
The Planning Commission’s Consultation Paper on Projections of Investment in Infrastructure during the 11th Five Year Plan (2007-12) , the total investments in infrastructure sector is projected at USD 492 billion (Rs20,18,709 crore). The sectoral disaggregates show that 30.5% of the projected investments will be in power sector, 15.4% in roads and bridges, 13,2% in telecommunications, 12.6% in railways, 3.7% in ports, 1.7% in airports and the remaining in sectors like irrigation, gas, storage, water, sanitation etc.
Going further, the Consultation Paper has estimated that the investment requirements during the ten year period 2007-2017 covering the 11th and 12th Five Year Plans would be of the order of USD 1.48 trillion. Private investment is expected to constitute more than 65 per cent of total investment in telecom, ports and airport sectors during the Eleventh Plan. For the power sector, it would rise to 26 per cent and for the road sector to 36 per cent. The shares of public and private investment in total infrastructure investment during the Eleventh Plan are projected to be about 70 per cent and 30 per cent respectively; in contrast with 83 per cent and 17 per cent respectively, during the Tenth Plan
Financial assistance from IIFCL would be available for eligible projects in the following sectors:
- Roads & bridges, railways, seaports, airports, inland waterways, other transportation projects;
- Power;
- Urban transport, water supply, sewerage, solid waste management and other physical infrastructure in urban areas;
- Gas pipelines
- Infrastructure projects in special economic zones
- International convention centers, other tourism related infrastructure; and
- Other infrastructure projects, as may be determined from time to time.
Business Outline and Approach
A broad business outline and the resources plan of the company projects commitments in the range of Rs. 10,000 crore (Approx. USD 2.2 billion) during the first full year of its operations. For this, the Company is tying up long-term resources from different sources, both domestic and overseas.
In the backdrop of contribution made by the IT sector in placing India on the global map, the Hon’ble Finance Minister, while presenting the Union Budget for FY 2007, highlighted that the time was ripe for making the country a preferred destination for manufacture of semi-conductors and other high technology IT products including Wafer, Assemble, Test and Manufacture of Semi-conductors, Flat LCD/OLED/Plasma Panel Displays and Storage Devices. To achieve this goal, a suitable policy from the Ministry of Information Technology, is on the anvil. The Company is expected to associate in creation of a window for providing equity participation for viability gap funding to the new ventures. The Window would be open for three years.
The infrastructure imperatives have been examined across sectors and across implementing agencies and a four-fold approach has been developed:-
- Extend financial support to infrastructure projects in association with agencies, such as, National Highway Authority of India, National Airport Authority Ltd., Ministry of Power, etc. for PPP Projects
- Consider PPP project outside the framework of apex institutions for financial assistance at the state and municipal level e.g. roads, urban development, minor ports, tourism related infrastructure.
- Develop instruments to enhance investment in infrastructure, e.g. Guarantee Fund, Investment Fund, Equity Fund etc.
Progress Achieved
Upto 30th September 2007, IIFCL has approved financial assistance of Rs. 14,966 crore to 64 infrastructure projects. Disbursement of sanctioned loans has picked up and the Company has envisaged loan approvals to the tune of Rs150 billion during FY 2007- 08. To meet such expanded business, the company has structured and posed various borrowing proposals from within the country and abroad. The Company’s proposals for long term borrowings from the World Bank, Asian Development Bank, JBIC and Kreditanstalt für Wiederaufbau (KfW) are at different stages of approval. The Company has been accorded approval by the Reserve Bank of India to raise external commercial borrowing of US$ 500 million during the year.
Higher economic growth leads to faster urbanization. Recognizing that urban sector is a key driver of growth of the economy, the Government of India has announced various initiatives for development and improvement of urban infrastructure. The Jawaharlal Nehru National Urban Renewal Mission (JNNURM) which is aimed inter-alia at planned development of identified cities, ensuring adequate funds to meet the deficiencies in urban infrastructure and better provision of basic services to urban poor calls for significant investments of Rs1200 billion. Under this, Government of India would be contributing Rs500 billion as grants. In this context, IIFCL has participated in a Pooled Municipal Debt Obligation (PMDO) Facility as a co-sponsor with a committed contribution of Rs1.5 billion. The facility which has a corpus of Rs30 billion intends to create an environment where Urban Local Bodies (ULBs), state governments and other stakeholders embark on reforms to improve credit worthiness and bankability of urban infrastructure projects. The PMDO would use efficient transaction structures built on robust risk management processes.
The Company has joined hands with Infrastructure Development Finance Co Ltd (IDFC) and Citigroup Inc under the India Infrastructure Initiative which aims to collectively facilitate large scale capital investments into infrastructure assets in India. US$5 billion is to be raised in long tenor debt and equity capital in several tranches over the next few years under this initiative. Of this, US$3 billion debt fund will be raised by IIFCL and US$25 million would be contributed by the Company towards corpus of the venture equity fund of US $ 2 billion to be set up by IDFC, Citigroup and Blackstone Group.
IIFCL has approved financial assistance of Rs. 9240 crore to 47 infrastructure projects.
Taking the strategic partnership route, the Company has joined hands with 3i Group PLC, one of world’s leaders in private equity and venture capital, for infrastructure financing in India, focused on areas like power, ports, logistics, airports and roads. IIFCL would act as knowledge partner to guide the raising of two private equity funds dedicated for investment in infrastructure sector in India and building the Advisory Board for the funds. Taking the strategic business collaboration further, IIFCL will also act as knowledge partner for Macquarie Bank Ltd for a venture capital fund with initial target of US$1 billion growing to in excess of US$2 billion, which will be invested in projects and companies in roads, ports, power, airports and other urban infrastructure sectors in India over the next 3 - 5 years.
Besides, the Company has entered into MoU with 20 banks/ institutions in the country for creating deal flows, appraisal, syndication and other financial services.
Rating of the Company
The Company’s domestic borrowing programme has been rated by two rating agencies of the country viz., CRISIL and ICRA and they have assigned “AAA (SO)/Stable” (indicating high degree of safety) & “LAAA (SO)” ratings (indicating highest credit quality) respectively. In respect of international rating, Standard & Poor’s has awarded “BBB -“ rating to the Company which is at par with the sovereign rating of India. The outlook in respect of such rating is considered “Stable”.
The company operates with a lean and thin structure to keep overheads to the minimum. The operating team comprises dedicated professionals drawn from different banks, financial institutions and Government departments. |
