India Infrastructure Finance Company Limited (IIFCL) will soon come up with a product that will allow it to upgrade ratings of infrastructure bonds. IIFCL has invited expressions of interest for undertaking a study on the product.
The lender had shortlisted a few consulting firms which would start the study in two weeks, said an IIFCL executive, adding the study would take three to six months.
IIFCL has submitted its proposal to the government. An announcement can be expected in the Budget.
The study is aimed at establishing the economic cost of credit enhancement, identifying the timing for introduction of credit enhancement and creating a viable and sustainable economic model along with potential structures and pricing.
The executive said the terms of reference of the study would include giving estimates of probability of default and the loss involved.
It would also examine the different forms credit enhancement may take — full credit enhancement, senior-subordinated structures, principal-only guarantees, rolling or fixed, accelerating or continuing. The study would also include views of different stakeholders, including the government, the Reserve Bank of India, rating agencies and banks.
Credit enhancement of bonds, for instance from ‘BBB’ rating to ‘AAA’ rating, increases demand from insurance companies and pension funds. Earlier, IIFCL was planning to launch the scheme by December 2010. However, the government did not give its nod to the product.
Meanwhile, IIFCL on Thursday announced it would raise Rs 1,200 crore by issuing tax-free infrastructure bonds. The issue is opening on February 4 and will close on March 4. It will issue 10-year bonds with 8.15 per cent interest compounded annually and 15-year bonds offering 8.30 per cent a year.
