Life Insurance Corporation of India (LIC) along with Srei Infrastructure Finance will float the country’s first infrastructure debt fund (IDF), under a government scheme aimed at boosting investments in sectors like roads, seaports, airports and power.
The IDF scheme was announced in Budget this year. In June, Sebi came out with norms for these funds to be set up through the mutual funds route. Recently, the RBI laid down the guidelines for infra debt funds as NBFCs.
A senior official told FE that the government was keen to set up the first IDF by January. LIC is in talks with Sebi to get the approval for a debt fund, which will be a mutual fund, the official said.
Hemant Kanoria, CMD, Srei confirmed the development. Kanoria said, ?Recently, Srei has got an in-principal approval from Sebi to set up a mutual fund. The market regulator has approved the trustees and we are keen to set up the debt fund as early as possible?. The company is yet to finalise its investment plan as the discussions are still at a initial stage. Sources in the finance ministry, said LIC is keen to become part of IDF as it has not been able to meet it’s investment target of 15 % of its total income in the infrastructure sector due to the lack of high rated paper.
As per norms of the Insurance Regulatory and Development Authority (Irda), insurers are allowed to invest only in AAA and AA rated debt papers in the infrastructure sector. So, IDF becomes a logical choice for the organisation.
In case of IDFs through mutual fund route, the bonds issued will have the facility of credit enhancement inherent in Public Private Partnership (PPP) projects. Such IDFs would refinance PPP projects after their construction is completed and they have successfully operated for at least one year. Such projects would involve a lower level of risk and a higher credit rating, making them viable for insurance companies. As per the norms, insurers have to invest minimum 15% of their total income in infrastructure which can be going up to 50%. But LIC has been able to invest only 12% in infrastructure. This regulation applies to traditional portfolios and LIC has the highest traditional portfolio as its 60% income comes from traditional products. The requirement of infrastructure in the 12th Plan has been pegged at $1 trillion.
An IDF may be set up either as a trust or company. While the trust-based IDF (Mutual Fund) would be regulated by Sebi, an IDF set up as a company (NBFC) would be regulated by RBI.
