43932-014: Credit Enhancement of Project Bonds

Project Data Sheet (PDS): Overview


Description

The facility will support credit enhancements of infrastructure project bonds to address one of India s key development challenges, namely to meet the infrastructure investment target of about $1 trillion during the Twelfth Five-Year Plan for FY2012 FY2016. The longstanding method of financing Indian infrastructure projects almost exclusively through loans from banks is no longer sustainable. The banks do not have resources large enough to meet all the country s projected infrastructure financing needs and are also fast approaching their allowed sector exposure limits to infrastructure and their allowed group exposure limits to major infrastructure developers. Planning Commission is projecting a potential debt financing shortfall of $350 billion in infrastructure investment over the plan. This deficit could be addressed by tapping into India s large resource pool of insurance and pension funds through bond markets. However, these funds have not been utilized for financing infrastructure as statutory requirements require that these funds invest only in assets rated AA or above. However, infrastructure assets are typically rated BBB to A, at best. The proposed facility by providing credit enhancement will raise the credit rating of infrastructure project bonds to the required AA rating, thereby providing the critical missing step required to mobilize infrastructure financing from pension and insurance funds and promote development of the domestic corporate debt market. The facility has been developed in partnership with India Infrastructure Finance Company Limited (IIFCL) and it dovetails other public-private partnership (PPP) infrastructure development initiatives by the government and ADB to support PPP enablers and provide long-term project finance. Under the facility, IIFCL, which is a domestic AAA entity, will issue partial credit guarantees (PCGs) in support of infrastructure project bonds and ADB will assume a portion of the credit risk on the underlying project from IIFCL by issuing it a counter guarantee. The PCGs will raise the rating of the project bonds to the AA level, which will enable domestic institutional investors to invest in the credit enhanced bonds in accordance with domestic regulation. In addition to IIFCL, ADB will seek to partner with other eligible domestic financial institutions. Read More

Country India
Borrower/Equity Investment Name
Project Number 43932-014
Project Type or Modality of Assistance Private Sector Loan and Equity
Financing Private sector (Nonsovereign)
Status Approved
Approval Number 7360
Approval Date 20 Sep 2012
Geographical Location tbd
Sector / Subsector Classification Finance
/ Money and Capital Markets
Thematic Classification Capacity development
Economic growth
Private sector development
Safeguard Categories Environment: FI
Resettlement: FI
Indigenous People: FI

 

 

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Project Data Sheets (PDS)

Translated PDS

Responsible ADB Officer
Vivek Rao
Request for information

Responsible ADB Department
South Asia Department

Responsible ADB Divisions
Public Management, Financial Sector and Trade Division, SARD

PDS Creation Date
23 Aug 2012

Last PDS Update
23 Aug 2012

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