The India Infrastructure Finance Company Limited (IIFCL) announced the issuance of India’s first infrastructure bond issuance Credit Enhanced by it. The rating of these bonds has been enhanced based on first-loss partial credit guarantee by IIFCL under its Credit Enhancement Scheme. Asian Development Bank has been actively involved with IIFCL in this endeavor and has also participated in this transaction as IIFCL’s Backstop Guarantor. IIFCL is currently working on many such transactions which are expected to be finalized shortly.
The transaction involves issuance of Rs 451 crore Bonds partially guaranteed by IIFCL thereby enhancing its rating to AA+(SO) by Renew Wind Energy (Jath) Ltd.. The Issuer is a subsidiary of Renew Power Ventures Pvt. Ltd. and operates 84.65 MW wind power project in Maharashtra. IDFC Ltd. acted as Sole Arrangers and Underwriters to these bonds.
The bonds are a result of an intensive structuring exercise, over several weeks amongst IIFCL, ReNew, IDFC, ADB, India Ratings, and CARE Ratings to finalize the deal features, including payment mechanism, guarantee timelines, reserves accounts, operational covenants, rating triggers, etc. Further, given that this bond is the first of it’s kind, it required diligent documentation. The transaction was successfully executed on 16th September 2015. With this issuance of these bonds, Renew Wind Energy (Jath) Ltd. has been able to replace its existing debt with bonds having much higher tenor and at the same time with substantial reduction in interest burden. This issuance has also benefitted the existing lendersby freeing up their exposure limits for taking new projects. The bonds shall be listed on the National Stock Exchange thereby providing liquidity for new investors.
In India, so far infrastructure debt funding is being primarily done by the banking sector whereas worldwide Debt Capital Markets are the major source of such financing. Going forward, however, constraints on the banking sector like asset liability mismatch, exposure constraints and increased capital requirement under the Basel III norms would restrict their funding of infrastructure projects. It is therefore essential that infrastructure projects are able to raise funds through alternative means and tap capital markets for such funding. Further, Infrastructure projects are generally rated BBB or A, whereas the investors prefer higher rated bonds.
This Bond Issue would open up the bonds markets to infrastructure projects and will lead to the development of the Indian debt capital market. It would enable channelization of long term funds from investors like insurance companies and pension funds into infrastructure sector. This initiative would also provide investment opportunity to the overseas investors who may not like to take project construction risk but may prefer taking exposure in operational infrastructure projects.
IIFCL, wholly owned by the Government of India, is a premier infrastructure financing institution of the country. It provides long term financial support to infrastructure projects in India through Direct Lending, Subordinate Debt, Takeout Finance, Refinance and Credit Enhancement.