The past year witnessed a host of measures and initiatives taken by the government, the apex bank and the capital market regulator to ease financing and expand the investor base for infrastructure projects amidst constrained bank credit to the sector. During the year, there was increased focus on addressing the issue of stressed assets in the banking system. Meanwhile, alternative funding options such as bonds and infrastructure investment trusts (InvITs) are being explored.
Indian Infrastructure takes a look at the key developments during the past year…
- On May 5, 2017, the central government notified the Banking Regulation (Amendment) Ordinance, 2017, to give the Reserve Bank of India (RBI) more powers to tackle the bad loans clogging the banking system. The ordinance comes into force immediately and enables RBI to direct banks to initiate bankruptcy proceedings of defaulting companies under the Insolvency and Bankruptcy Code, 2016. The new framework may also allow state-owned banks to conduct open auctions of non-performing assets.
- In an effort to help resolve the stressed assets situation of the banking system, Infrastructure Leasing ans Financial Services Limited has formed a joint investment platform with American private equity (PE) firm Lone Star for stressed infrastructure projects in India. The platform will have a capital pool of $550 million (Rs 36.85 billion).
- In a move that has the potential to improve the country’s infrastructure funding options, the cabinet has allowed state government entities to directly tap bilateral agencies for resources. The new fund-raising route will allow direct borrowing by state public sector undertakings from official development assistance partners in countries like Japan, the US and Germany.
- RBI has allowed multilateral and regional financial institutions to invest in rupee-denominated bonds (masala bonds) listed abroad. This has been done to provide a greater choice of investors to Indian entities issuing these bonds abroad. Agencies like the Asian Development Bank and the New Development Bank can also invest in the instrument.
- To boost the market for municipal bonds, the Securities and Exchange Board of India (SEBI) has allowed municipalities with a surplus on their books in any of the three immediately preceding financial years to issue such securities. Besides, the municipality should not have defaulted on the repayment of debt securities or loans obtained from banks or financial institutions during the past 365 days. SEBI has also put in place disclosure norms for municipal bonds, whereunder municipalities are required to disclose all price-sensitive information and financial results to the stock exchanges.
- Further, the Ministry of Urban Development has allowed as many as 26 municipal corporations to issue bonds to raise funds for developing urban infrastructure under initiatives such as the Smart Cities Mission and the Atal Mission for Rejuvenation and Urban Transformation. Following this, the Pune Municipal Corporation has become the first local body in the country to issue municipal bonds in nearly one and a half decades, raising Rs 2 billion for the smart city project.
- With regard to real estate investment trusts (REITs) and InvITs, SEBI has allowed mutual funds to invest in these instruments, with some riders in place. A mutual fund scheme cannot invest more than 10 per cent of its net asset value in units of REITs and InvITs; and a scheme cannot invest more than 5 per cent of its net asset value in units of a single issuer of REITs and InvITs. Further, RBI has permitted banks to invest in up to 10 per cent of the unit capital of REITs or InvITs.
- The capital market regulator has exempted Category II alternative investment funds, comprising PE firms and real estate funds, from the one-year lock-in period in initial public offerings. This will bring about uniformity, facilitate ease of doing business and expand the investor base available for raising capital.
- SEBI has revised the regulatory framework governing mergers and acquisitions wherein the public shareholding of the entity created by the merger of an unlisted and a listed company must be over 25 per cent. Further, the government has exempted merger deals where the target company had assets of Rs 3.5 billion or turnover of up to Rs 10 billion from seeking Competition Commission of India approval.
- The National Investment and Infrastructure Fund (NIIF), along with the UK government, has committed to anchor invest £120 million each in a private equity fund for green energy that aims to garner a total of £500 million. Meanwhile, the NIIF is in an advanced stage of talks with Temasek Holdings of Singapore and the Abu Dhabi Investment Authority for investments.
- China-sponsored Asian Infrastructure Investment Bank has approved a $160 million loan for a power project in Andhra Pradesh, the first credit from the bank for an Indian project. The bank has also approved a $150 million equity investment in the India Infrastructure Fund, the bank’s first such investment to fund private projects.