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The Manila-based Asian Development Bank (ADB) will give $ 700 million to the India Infrastructure Finance Company Ltd (IIFCL) in the next one-and-a-half years to fund infrastructure projects in India.
The $700-million funding has been approved by ADB, Juan Miranda, bank director-general for South Asia Regional Department told Business Standard. Of the $700 billion, $400 billion would be given to IIFCL by early 2014 and the remaining by early 2015, Miranda said.
“India needs to invest more in infrastructure — $1 trillion in 12th Five Year Plan (2012-13 to 2016-17). The private sector would be called upon to bridge the shortfall to the tune of $ 100 billion over the Plan period. We have put in $700 million,” Miranda said.
The funding would be for two purposes — directly lending to developers and take-out financing — replacing financing by banks with IIFCL funding which would free up bank loans for green field projects and other investments. Most part of the money would go towards direct financing by IIFCL. A small proportion (10-15 per cent) would be for take-out financing, he said.
He said it was up to IIFCL to decide the projects it wanted to lend to. However, urban infrastructure, energy, water management, health, education, airports could be funded. “It is up to IIFCL to take a call on the geography it wants to lend, but we would be happy if these are in less developed areas,” Mirinda said, adding there is business across India in this field. “Next thing would be to tap international capital markets — pension and insurance, private equity players,” he said.
He said the ADB is in a partnership agreement with India for the next five years to look for special purpose vehicles to draw international money for infrastructure projects.
As many as 31 road, railway, airport, urban infrastructure and energy projects are in the pipeline to receive support from ADB, he disclosed.
The latest financing by ADB to IIFCL comes on top of a previous $500 million loan facility approved in 2007, which helped fund 30 public-private partnerships including the Delhi and Mumbai international airports. ADB had then approved $700 million in 2009, which is still being disbursed.
ADB has also partnered with IFCL to provide credit enhancement for infrastructure projects. Under this scheme, IIFCL provides partial credit guarantee to enhance the ratings of the project bond issue, enabling channelisation of long term funds from fairly untapped sources such as insurance companies and pension funds towards the infrastructure sector. ADB provides backstop guarantee facility up to 50 per cent of IIFCL's underlying risk.
