The government having issued guidelines for setting up infrastructure debt funds (IDFs), half a

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dozen banks and companies are already readying themselves to set up such funds of about $3 billion each. Several mutual funds are also contemplating entry.

The guidelines are on the lines suggested by the Deepak Parikh committee, which had first recommended formation of a fund with initial corpus of $10 billion to meet the huge investment requirements of the infrastructure sector in public-private partnership.

The broad structure announced by the finance ministry on Friday allows setting up an IDF either as a trust or as a company. A trust- based IDF will normally be a mutual fund issuing units while a company- based IDF will normally be a non-banking financial company (NBFC) issuing bonds.

Agreeing that the guidelines were “very much on the lines” of what his committee had recommended, Parikh told Financial Chronicle that “initially at least four — State Bank of India, ICICI, IDFC and IIFCL — are planning infrastructure debt funds of about $3 billion each.”

These IDFs will be companies in the shape of NBFCs. The guidelines said trust- based IDFs would be regulated by the Sebi, while the company based ones would come under Reserve Bank of India regulation.

The guidelines made it clear that the investors will primarily be domestic and offshore institutional investors, especially insurance and pension funds that have long-term resources. Banks and financial institutions (FIs) will only be allowed to invest as sponsors.

IDF companies can raise resources the through issue of either rupee or dollar denominated tradable bonds of minimum five-year maturity. It will invest in debt securities of only PPP projects which have a buyout guarantee and have completed at least one year of commercial operations. Refinance by an IDF would be up to 85 per cent of the total debt.

“IDFC already had a meeting on Saturday to work out the details of setting up of an infrastructure debt fund,” Parikh said.

About $1 trillion is to be spent on infrastructure in the 12th plan beginning next year. There is likely to be a 30 per cent shortfall in funding. Planning commission deputy chairman Montek Singh Ahluwalia has said 50 per cent of the $1 trillion projects would be in the private sector, mostly under the PPP mode. This means that government will have to provide viability gap funding of about $150 billion.

Initially, Parikh said, an IDF company would fund projects already completed, like the Bandra-Worli sealink. UTI MF’s chief marketing officer, Jaideep Bhattacharya, said, “UTI will certainly be looking at it. We are yet to go through the details of the guidelines. IDFs provide a great opportunity as $1 trillion is going to be spent on infrastructure in the next five years.”

“When the opportunity presents itself, we will definitely be very interested. We will look into the details. IDFs are a good option,” said Sundeep Sikka, chief executive officer of India’s largest mutual fund, Reliance MF.

Arindam Ghosh, chief executive officer of Mirae Asset Global Investments, said: “IDF is a very good means of collecting long-term investments for infrastructure. We have to see whether any taxation benefits will be given. That (tax benefit) will increase its attractiveness.”

Sebi has already formulated a draft chapter Vl-B which on inclusion in the existing mutual fund regulations will permit setting up of IDFs by registered mutual funds.

Any domestic entity regulated by a financial sector regulator could be the sponsor of an IDF that is a trust. The sponsor’s role will be to responsibly deploy investor funds in viable assets and ensure highest returns for the investors and to manage all associated functions.

An IDF trust will raise resources through issue of rupee denominated units of minimum five-year maturity to be listed on the stock market. It will have to invest a minimum 90 per cent of its assets in debt securities of infrastructure companies or special purpose vehicles across all infrastructure sectors, project stages and project types.