Innovative methods of Infra Financing

Various methods of Infra

financing ..
Takeout Finance
For banks and FIs to free their capital for projects with no

construction phase risks.

Credit Enhancement
For infrastructure projects to tap the bond markets based on

improved security mechanism thereby supporting projects with

newer avenues of funds.
Tax-Free Bonds
Low Cost & Long-Tenor
Coupon fully Tax exempt

continued
Green Bonds:
To raise funds dedicated to climate-mitigation, adaptation, and

other environment-friendly projects

Infra Bonds:
Banks permitted to raise long-term funds for infrastructure

lending

Infrastructure Debt Fund

(IDF)

What is Infra Debt Fund(IDF)

In Sept 2011, RBI issued guidelines for permitting Banks and

NBFCs to set up IDFs in order to accelerate and enhance the flow

of long term debt in infrastructure projects for funding the
governments ambitious programme of infrastructure development.
Investors :
Off shore Institutional Investor.
Off Shore High Net worth Individuals (HNI) and NRIs
Domestic Institutional investors , Retail Investors.

IDFs could be set up either as MFs or NBFCs. Legal Form:

IDF-MF: as a Trust ;regulated by SEBI
IDF-NBFC: as a Company ;regulated by RBI

Parameter for setting up IDF

Setting up IDF-NBFC
Only NBFC-IFCs can sponsor IDF-NBFC with prior
approval from RBI and subject to following conditions :
Sponsor IFC should contribute maximum of 49% of
equity , minimum of 30% equity of IDF-NBFC
Post investment in the IDF-NBFC, the sponsor NBFCIFC must maintain minimum Capital to Risk Asset Ration
(CRAR) and Net Owned Fund (NOF) prescribed for IFC.
There are no supervisory concern with respect to the
IFC.

IDF NOF must be Rs 300 cr or above.

IDF should have minimum credit rating A or
equivalent.
IDF Tier II capital cannot exceed Tier I. Minimum
CRAR should be 15% of risk of weighted assets.

Setting up IDF-MF
Sponsor creating IDF-MF should have minimum Net
Owned Fund (NOF) of 300cr and CRAR of 15%.
Sponsor creating IDF-MF: NPA should be less that
3% of net advance.
Sponsor should be 5 years into existence.
Sponsor should be earning profit for last 3 years.
Condition of NBFC Post IDF-MF investment CRAR of NBFC shouldnt be less that prescribed
limit.
NBFC should continue to maintain required NOF
after accounting the investment in IDF-MF
Performance should be satisfactory and free from
supervisory concerns.

Possible IDF-NBFC Structure

Possible IDF-MF Structure

MF vs. NBFC
Infra Debt Fund (IDF)
Trust Based (Mutual Fund)

Company Based (NBFC)

SEBI Regulated

RBI Regulated

Issue units

Issue Bonds

Investment in
Infrastructure projects ,
post COD is not
mandatory

Investment in PPP/ non-PPP

projects after 1 year of
successful COD

Projects IDF-NBFC/MF can invest.

IDF-NBFC
Post

COD in existence
satisfactory operation.

of

IDF-MF
1

year

of

Tripartite Agreement with the concessionaire

and Project Authority

for ensuring
compulsory
buyout
with
termination
payment. RBI has recently allowed to invest
without Tripartite Agreement.
Credit Concentration Norms :

To individual projects will

be 50% of its total Capital

Funds , additional 10% on
board approval.
RBI upon request permit
additional exposure upto
15% (over 60% )

Can invest even in Grass root

projects.
Credit Concentration Norms :

Not more than 30% of

its net asset in any

single infrastructure
project, extended up
to 50% with prior
approval from Board.

Advantages of IDF-MF over IDF-NBFC

The MF route effectively allow the investor to pool their resources

across a range of infrastructure projects which may be under any

stage of execution.
IDF-NBFC can fund upto 85% of project cost while IDF-MF can

fund 100% provide credited concentration norms are not violated.

Capital required in case of IDF-NBFC is 15% of risk weighted

assets. In case of IDF-MFs, as MF only issue units, there is

flexibility in how much capital needs to be put in by Sponsors.

Disadvantage of IDF-MF

..continued

Limited access to overseas investors:

The funds will be limited to the rupee denominated units ,

resulting in credit risk to the investors who need to include the

hedging cost in the calculations.

Existing IDF summary List

Name of Company /
Trust
ICICI's Infradebt
L&T IDF
IIFCL's IDF
IL&FS IDF

Route adopted
(MF/NBFC)
NBFC
NBFC
Mutual Fund
Mutual Fund

Alternative Investment Fund

What is Alternative Investment Fund(AIF)

AIF refers to any privately pooled investment fund(whether from

Indian or foreign sources) in the form of a trust or a company or a

Limited Liability Partnership(LLP)
AIF is of three type. AIF (Infra Funds) are under Category I.

Salient points of AIF

Alternative Investment Fund
(AIF)
Trust Based (Mutual Fund)

Minimum Fund size: Rs 20 cr.

SEBI Regulated

Sponsor contribution : Min 20 cr

or 2.5% of corpus , whichever is
lower

Issue units

No of Investors : No minimum
number , but not more than
1000 investor in one scheme

Investment in
Infrastructure projects.
Infrastructure as defined by
Ministry of Finance , GOI

Can be issued by way of Private

Placement only

Investment & Exposure norms.

AIF in allowed to invest in SPV or Holding
company
Investment Norms

Min

Unlisted Securities (Unlisted Equity-Like

CCD , PCD, OCPS, FCPS,CCPS etc not listed
equity i.e share market)

Max

75%

100%

0%

25%

Listed / Unlisted Debt incl securitized Debt

Instrument
Any other securities listed or otherwise
Credit Concentration Norms
Not more than 25% of corpus in single project

Advantages of AIF over IDFMF

AIF can invest entire fund in CCD / PCD / NCD/CCPS/OCPS;

hence giving more option of the Investment Manager. Hence,

higher return is expected from AIF in comparison to IDF.
Sponsor need to invest only Rs 5 cr (or 2.5% of fund whichever is

lower) ; hence dependency on Sponsor is also less in starting the

AIF
AIF don't fall under purview of SEBI Mutual Regulation, AIF

regulation is lesser stringent. Less efforts are required for

compliance point of view during operation period.

Disadvantage of AIF
Regulators like PFRDA , EPFO don't allow investment in AIF.
Income Taxes rates are higher for AIF in comparison to IDF.

(Government is reviewing to reduce the applicable tax rate)

Existing AIF(Infra) summary List

Name of Company / Trust
IFCI Sycamore India Infra Fund
L&T Infra Investment Partners
SREI Alternative Investment Trust
Rudrabhishek Infrastructure Trust
Piramal Infrastructure Fund
India Alternative Energy Trust
India Infrastructure Fund II
Arthveda Alternative Investment Trust
Neev Fund

Infrastructure Investment
Trusts (InvITs)

Background
SEBI issued final regulation on 26 th Sep

2014

Structure

Framework
Sponsor to set up InvIT; not more than 3 sponsors
Cumulative projects size INR 500 cr
Issue size INR 250 cr
InvIT to invest in projects either directly or through SPVs (at least 50%

holding at SPV level)

Investment in units of InvITs is allowed by resident as well as nonresident investors
Minimum distribution = 90% of distributable cash flow of InvITs/ SPVs
Minimum lock-in period for sponsors 3 years from the date of listing
Investors to have right to remove the manager, trustee, request delisting,
etc.
Related party transactions to be on arms-length basis related investors
not permitted to vote

Different category of InVITs