New Delhi: Multilateral funding agency ADB, in partnership with IIFCL, will provide a facility that would help infrastructure bond issuers to enhance their credit ratings and attract investments from insurance firms and pension funds.

Under the USD 128 million (Rs 716.8 crore) facility developed with IIFCL, ADB and domestic finance companies will provide partial guarantees on rupee-denominated bonds issued by Indian companies to finance infrastructure projects.

Asian Development Bank will then take on a part of that guarantee risk, said Vivek Rao, Senior Finance Specialist in ADB's South Asia Department.

"The guarantee facility, a first for India, will also help make the country's bond market deeper and more vibrant, benefitting investors and borrowers," he added.

The credit enhancement will facilitate raising credit rating of bonds issued by infrastructure developers so that insurance firms and pension funds can invest in such instruments, Rao said.

As per the investment guideline, insurance companies are allowed to invest in instruments that are rated AA or above.

The partial credit guarantees that ADB will provide alongside India Infrastructure Finance Company Ltd (IIFCL) and other finance firms will boost the credit rating of a typical infrastructure project from BBB- or A to AA, he said.

This will allow cash-rich pension funds and insurers, which can only invest in assets graded AA or above, to buy the bonds, he added.

"Credit enhancement will provide the critical missing link which will allow insurance companies and pension funds to put their sizeable cash to work in the infrastructure sector," Rao said.

Replacing bank debt with bonds will, in turn, allow banks more room to provide loans to other infrastructure projects and businesses, he said, adding that international investors are also expected to look to buy Indian bonds.

Over the next three years, Rao said, the facility should provide partial guarantees on up to five infrastructure project bonds.

The infrastructure developer expected to benefit from the facility is GMR Group, which is seeking to sell a bond to refinance a loan taken to build and operate part of a toll expressway linking Hyderabad and Bangalore, he said.

Having proven the concept, ADB then expects that such credit guarantees will become well established in the market and ADB can move on to support Indian infrastructure development in other ways, he added.


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