Recent Developments

Regulatory changes and key investments

During the past year, there have been a number of policy amendments to ease financing from alternative sources such as bonds, external commercial borrowings (ECBs) and infrastructure investment trusts (InvITs).

Indian Infrastructure tracks key developments in the infrastructure financing sector in the past 12-15 months…

In a notable move, the Supreme Court quashed the February 12, 2018, circular for resolution of stressed assets issued by the Reserve Bank of India (RBI). The RBI circular directed banks to refer defaulters to bankruptcy courts if they were unable to find a resolution plan within 180 days for stressed accounts where the outstanding amount was more than Rs 20 billion. The central bank has now allowed lenders complete discretion to design and implement bankruptcy resolution plans. It will also put in place a system of disincentives in the form of additional provisioning for any delay in implementation of the resolution plans or initiation of insolvency proceedings.

In order to promote ECBs, RBI has drawn up a new ECB framework allowing all eligible borrowers to raise up to $750 million per financial year under the automatic route, replacing the existing sector-wise limits. The central bank has also expanded the list of eligible borrowers and recognised lenders. It has relaxed norms on the end use of funds raised via ECBs, making it more attractive and viable for corporates including non-banking finance companies (NBFCs) to raise cheaper offshore funds. Finally, RBI has allowed bidders of insolvent companies to raise ECBs and use those proceeds to repay the rupee loans of the targeted insolvent companies they are keen on acquiring.

With respect to real estate investment trusts (REITs) and infrastructure investment trusts (InvITs), the Securities and Exchange Board of India (SEBI) has streamlined the process of listing these instruments by allowing alternative investment funds and other affiliates of merchant bankers to participate in the anchor allotment of such public offerings. In addition, SEBI has reduced the minimum subscription requirement from any investor for a publicly issued InvIT from Rs 1 million to Rs 0.1 million. Similarly, the minimum trading lot for InvITs has been reduced from Rs 0.5 million to Rs 0.1 million. This is expected to increase the reach of retail investors in such instruments. Another key change is the increase in the leverage limit for InvITs from 49 per cent of the InvIT’s assets to 70 per cent.

In a bid to encourage bond issuances, RBI has withdrawn the 20 per cent limit on investments by foreign portfolio investors (FPIs) in corporate bonds of an entity with a view to encouraging more foreign investments. In addition, the central bank has allowed FPIs to invest in the municipal bonds issued by various urban local bodies. These changes will broaden the access of non-resident investors to debt instruments in the country.

After the successful listing of bonds of the Indore Municipal Corporation, the municipal bonds of Bhopal were listed on the debt platform of the National Stock Exchange. The Bhopal Municipal Corporation raised nearly Rs 1.75 billion on the closing day of the issue on September 25, 2018. The issue was oversubscribed by 1.06 times. The funds raised will be used for implementation of projects under the government’s Atal Mission for Rejuvenation and Urban Transformation.

In a notable development, Singapore state investment firm Temasek Holdings has signed an agreement to invest up to $400 million (Rs 27.5 billion) in the Master Fund of the National Investment and Infrastructure Fund (NIIF). This has helped the Rs 140 billion Master Fund mark its second closure. Temasek joins the Abu Dhabi Investment Authority, the HDFC Group, ICICI Bank, Kotak Mahindra Life Insurance and Axis Bank as an investor in the Master Fund and as a shareholder in NIIF Limited. Meanwhile, the NIIF announced the acquisition of IDFC Infrastructure Finance Limited (IDFC-IFL), an NBFC registered with RBI, as an infrastructure debt fund. This acquisition is the first investment from the NIIF’s Strategic Fund and the first control transaction for it. Further, the State Bank of India (SBI) and the NIIF have inked an MoU to increase the availability of capital for infrastructure projects. The scope of the MoU includes equity investments, project funding, bond financing, renewable energy support and take-out finance for operating assets.

In order to increase funding for renewable energy projects, PTC Financial Services is setting up the country’s first infrastructure development debt fund, solely for renewable energy projects, in partnership with UK Climate Investments LLP and the Department for International Development, UK. The company has raised Rs 4 billion from SBI under the credit enhancement scheme, enabling it to raise bonds worth Rs 20 billion. The Renewable Infrastructure Development Fund will be set up with an initial corpus of Rs 5 billion and will be managed by a separate company.

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