Infrastructure companies may now get foreign currency loans at about half of the prevailing market prices with the UK arm of India Infrastructure Finance Company Ltd (IIFCL) slashing the interest rates by up to 275 basis points. Projects developers can now get loans at Libor plus 200 basis points, meaning the interest rate will be as low as 200-275 basis points, against the market rate of about 550 basis points.
Further, the benefit of reduced rate can also be availed by project developers that have already raised money through overseas borrowing, with IIFC (UK) providing takeout financing of the external commercial borrowing (ECB) loans to the extent of 100 per cent of the residual amount. As ECBs are for a shorter duration of about five years, takeout by IIFC (UK) will allow developers access long term loans.
“As per the directions from Finance Minister P Chidambaram we have decided to work on a thin margin and reduce the rate so that infrastructure projects become viable. This is the lowest rate in the world. Developers will be encouraged to import better quality equipment,” said IIFCL Chairman SK Goel.
In order to support private sector infrastructure projects, the board of IIFC (UK) has also agreed to remove the condition that 80 per cent of the total lending should be for Public Private Partnership (PPP) projects. This would allow the financing company to meet the requirements of private companies importing machinery from abroad.
Goel said most of the projects before the IIFC (UK) were coming from the private sector, but the company was not able to lend more than 20 per cent of the total lending. Out of 56 proposals it received, only 12 were for PPP and therefore majority of the projects could not take off, he said.
Business proposals for assistance from IIFC (UK) mainly emanate from the sectors having adequate import components of capital equipment and machinery such as power, ports, airports, gas pipeline and fertilisers.
The Reserve Bank of India has provided line of credit of $5 billion to the company for raising in tranches through issue of dollar denominated bonds for subscription by the central bank. The bonds are issued for 10 years and carry floating rate of interest equivalent to US dollar six month Libor. The government also extends sovereign guarantee to the borrowings.
Goel said with the takeout financing being extended to IIFC (UK) the funds can be exhausted within a year. The line of credit is available till 2014 and so far the company has used only about $800 million.
