• Infrastructure debt funds expected to stage a comeback this fiscal

    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 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 Rs 6,000 crore. However, these funds are still miniscule compared with Rs 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 Rs 12,000 crore of renewable energy projects and at least Rs 2,600 crore of road projects will be up for refinancing soon, for which IDFs can bid. LaDainian Tomlinson Jersey

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