To meet infrastructure funding developers are ready to put up rental bonds for sale

Addressing an industry group recently, Dr Arvind Mayaram, Secretary, Department of Economic Affairs, indicated that the Govt of India is considering introduction of a new infrastructure Trust Fund on the lines of Real Estate Investment Trust, with tax sops, so that, the mammoth funding requirements of funding infrastructure projects can be easily met. It is also reported that, private real estate developers are readying themselves to put up rental income backed bonds for sale. At the same time, another report states that, the Infrastructure Development Finance Corporation ( IDFC) will be selling similar bonds backed by lease rentals from Special Economic Zones and infotech parks developed by them. What are these bonds? Has this idea come up from the Reserve Bank of India’s restrictions on bank finance to the sector like the 80: 20 order? Again, are these bonds mooted on the Singapore pattern?

Govt Plans.

The last 2-3 Central budgets have been earmarking substantial allocations for roads, highways, airports and sea ports based on the policy of encouraging infrastructure development. However, with budgetary constraints and the growing current account deficit(CAD) as also the shortcomings in PPP model, it has become necessary to find more innovative plans to garner funds. The real estate developers too are facing road blocks in increased bank finance to the sector. The thinking regarding setting up of Real Estate Trusts has come up on this plank.

The Singapore pattern

The Govt of Singapore was one of the pioneering countries which tapped future income for creative use in developing infrastructure, by setting up Special Purpose Vehicles (SPV) which will buy the illiquid assets like, accounts receivables from entrepreneur companies and float bonds in the market, backed by supporting assets. Singapore took up implementation of massive infrastructure programmes like roads, parking lots, commercial complexes, malls, economic zones, tech-entertainment parks during its post war economic revival and the bond sales managed to garner the much needed funds.

The Indian effort

The news is that, India’s largest listed developer, D.L.F may probably be the pioneer in the bond sale backed by commercial real estate lease rental income. If reports are to be believed, the Reheja Group has also similar plans. All these may be because of the govt’s likely clearance to allow setting up of Infrastructure Trust Funds. The bond structure is referred to as a commercial mortgage backed security instrument.

Challenges to new plans.

The investor market appetite, coupled with the interest rate likely to be offered, risk in property price movement and volatility in demand are the factors likely to either bolster or diminish the growth in the bond market. Being a new product, risk rating will also be crucial. As we all know, interest payable on these bonds periodically need to be generated from recurring or roll over income.


There are positives and negatives to any proposal. Raising alternative path for funding is the main objective. One of the objectives pitched upon while setting up the I.D.F.C was to handle the huge task of raising funds for India’s massive infrastructure growth plans, instead of budget support. If the Infrastructure Trust Fund is going to stabilize and the private trusts can be enabled to take up sale of asset based or income based bonds, it can open up a new vista in raising alternate finance for infra sector