IL&FS Infra Asset Management Limited (IAML), an asset management company (AMC) promoted by IL&FS Financial Services Limited to manage the IL&FS Infrastructure Debt Fund (IIDF), on Monday, inked a memorandum of understanding (MoU) with eight public sector banks (PSBs) for developing take-out finance to facilitate the country’s infrastructure development.
The PSBs which have joined hands with IL&FS for the purpose are: Allahabad Bank, Bank of India, Canara Bank, Central Bank of India, Indian Bank, Indian Overseas Bank, Oriental Bank of Commerce and UCO Bank.
Alongside, India Ratings (Ind-Ra), the Indian arm of the global agency Fitch, has assigned the first series of the Infrastructure Debt Fund (IDF) with a triple A stable rating under the Securities and Exchange Board of India (SEBI) guidelines to help instil confidence among global investors, and provide a thrust to the infrastructure sector.
Releasing the ‘IND AAAidf-mf’’ rating assigned by Ind-Ra to the initial three MF schemes of IL&FS IDF aggregating Rs 15 billion at a function organised at North Block for the MoU signing ceremony, DEA (Department of Economic Affairs) Secretary Arvind Mayaram said the new product from India Ratings for rating IDFs “is very important because this will give confidence to investors, especially from overseas Sovereign Wealth Fund and pension funds and others, for them to be able to assess whether their investments in a particular IDF or another IDF would be able to give the kind of return they expect”.
The IL&FS group-sponsored IDF launched with an initial corpus of $1 billion would go up to $5 billion in the medium-term, and its first three schemes of Rs.500 crore each with ‘IND AAA idf-mf’ rating denotes the highest strength of credit protection factors embedded in a fund's investment policies and the quality of the sponsors and investment managers.
Maintaining that the rating was going to be extremely helpful, Dr. Mayaram said: “We are also now looking at some movement on the take-out finance side. Several IDFs have been set up. Today, large number of banks have came together and they have signed an MoU with one of the IDFs for the purpose take out finance...getting into future arrangement for stepping out of the project and allowing the IDF to step in.”
The mechanism, he said, would help banks clean up their balance sheets, and enable them to on-lend further to new projects. With the country in need of $1 trillion for investment in infrastructure development during the XII Plan, Dr. Mayaram said the banks would continue to play a critical role in extending debt finance for new infrastructure projects. Without investments in infrastructure, it would be difficult for the country to achieve the potential growth rate of eight per cent, he said.
In this regard, an official statement said that IDFs were expected to be the medium for channelising the much-needed long-term debt for financing infrastructure projects, and also to help in migration of project loans for operating assets from banks to the fixed income markets.