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Cabinet nod for infrastructure SPV

Special Correspondent

New Government company to finance projects

NEW DELHI: The Union Cabinet on Thursday gave its nod for setting up a special purpose vehicle (SPV), to be known as India Infrastructure Finance Company Ltd. (IIFCL), to fund mega projects.

Information and Broadcasting Minister S. Jaipal Reddy told newspersons after the Cabinet meeting that IIFCL, to be incorporated as a company under the Companies Act, 1956, was to be fully owned by the Government and apart from its equity, it would be funded through long-term debt raised from the open market.

Govt. guarantee

The Government guarantee limit for IIFCL, Mr Reddy said, would be fixed at the beginning of each fiscal. For 2005-06, the Government would provide guarantee up to Rs. 10,000 crore to help IIFCL borrow long-term funds with a maturity of ten years and above from the domestic and overseas markets.

It would also be free to borrow funds from bilateral or multilateral lending agencies such as the World Bank and the Asian Development Bank (ADB). With the Government's approval, it might raise foreign currency debt, including external commercial borrowings (ECBs).

The Cabinet also approved the setting up of a `Search committee' to select the whole-time directors of IIFCL.

To facilitate the establishment of the SPV, a temporary post at the level of Joint Secretary in the Department of Economic Affairs (DEA) would be created for four months.

IIFCL, Mr Reddy said, would finance only "commercially viable" infrastructure projects sponsored by any entity involving the public and private sector or in `public-private partnership' (PPP) basis. In this regard, Mr Reddy made it clear that viable projects would include those which qualify for and become viable after receiving `viability gap funding' under a scheme formulated for the purpose.

IIFCL, apart from direct lending, can extend refinance to banks and financial institutions for loans with a tenure of five years or more.

However, it would undertake only those projects that had been appraised by a lead bank, which had about 25 per cent debt exposure in the project.

The loan assistance from the SPV would in no case exceed 20 per cent of the project cost.

The interest rate charged on loans provided by IIFCL would be so fixed as to cover the cost of guarantee fees and administrative costs besides the funds lent, Mr. Reddy said.

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