In­fra Debt Funds Ex­pected to Stage a Come­back This Fis­cal

RBI nod to raise up to 10% of out­stand­ing bor­row­ings via shorter-ten­ure loans to help cos re­duce their cost of funds

The Economic Times - - Economy: Macro, Micro & More -

Joel Re­bello & Saikat Das

Mum­bai: In­fras­truc­ture Debt Funds (IDFs) could stage a re­vival this fis­cal on the back of lighter in­vest­ment reg­u­la­tions and more flex­i­bil­ity in rais­ing re­sources, ex­perts say.

Last week, the Re­serve Bank of In­dia (RBI) had al­lowed In­fras­truc­ture Debt Fund-non bank­ing fi­nan­cial in­sti­tu­tions (IDF-NBFCs) — or in­vest­ment ve­hi­cles spon­sored by NBFCs with in­vest­ments from do­mes­tic and off­shore in­sti­tu­tional in­vestors mainly for re­fi­nanc­ing debt of in­fras­truc­ture com­pa­nies — to raise up to 10% of their to­tal out­stand­ing bor­row­ings through shorter ten­ure bonds and com­mer­cial pa­pers, giv­ing them the much-needed flex­i­bil­ity to man­age their as­sets and li­a­bil­i­ties.

An­a­lysts said bor­row­ing through a shorter ten­ure will al­low th­ese com­pa­nies to re­duce their cost of funds by tim­ing some of their bor­row­ings through th­ese in­stru­ments, es­pe­cially when in­ter­est rates are down. “They can now af­ford to time the mar­ket and bor­row cheaper funds,” said Karthik Sriniva- san, co-head fi­nan­cial sec­tor rat­ings at ICRA. “For ex­am­ple, the one year com­mer­cial pa­per cur­rently is less than 8% while a bond of the same ten­ure is around 8.5%. This will gen­er­ally mean some cost sav­ing for IDFs, but the sav­ing will be lim­ited be­cause such short-term bor­row­ing is capped at 10%,” he said.

RBI’s eas­ing of reg­u­la­tion on bor­row­ing for IDF-NBFCs fol­lowed other important mea­sures an­nounced in May 2015.

The cen­tral bank had then al­lowed th­ese funds to in­vest in public-pri­vate part­ner­ship projects even with­out a gov­ern­ment-backed au­thor­ity, open­ing the pos­si­bil­ity of even pri­vate in­fras­truc­ture projects re­ceiv­ing funds, pro­vided they have com­pleted at least one year of sat­is­fac­tory com­mer­cial op­er­a­tions.

RBI also did away with a re­quire­ment for the IDF to sign a three-way agree­ment with a gov­ern­ment agency like NHAI as one of the party, mak­ing it sim­pler for th­ese funds to in­vest.

“The changes in May had eased the as­set side of our busi­ness be­cause it al­lowed us to in­vest even in non-PPP projects. The lat­est changes will ease our li­a­bil­ity side as it gives us scope to raise short-term funds,” said Sadashiv Rao, CEO of IDFC IDF. Three NBFC IDFs — IDFC IDF, L&T IDF and ICICI Bank-backed In­dia In­fradebt — are cur­rently ac­tive with to­tal con­sol­i­dated as­sets un­der man­age­ment of around .₹ 6,000 crore. How­ever, th­ese funds are still minis­cule com­pared with .₹ 1 lakh-crore in­fras­truc­ture loans given by banks.

“The new­est RBI reg­u­la­tion will pro­vide th­ese funds with ad­di­tional flex­i­bil­ity be­cause they can use th­ese short-term in­stru­ments to bridge their as­set-li­a­bil­ity gaps. But this flex­i­bil­ity will not re­sult in any ex­tra­or­di­nary jump in th­ese com­pa­nies’ prof­its or mar­gins,” said Abhishek Bhat­tacharya, co-head for banks and fi­nan­cial in­sti­tu­tions rat­ings at In­dia Rat­ings & Research.

Bhat­tacharya said IDFs face chal­lenges in choos­ing the right kind of projects be­cause the in­fras­truc­ture sec­tor has still not re­cov­ered fully. He es­ti­mated that around .₹ 12,000 crore of re­new­able energy projects and at least .₹ 2,600 crore of road projects will be up for re­fi­nanc­ing soon, for which IDFs can bid.

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