Infra debt funds' failure sparks alarm for the sector

The infrastructure sector is far from achieving its $1.3-trillion  target under the five-year plan.

One of the many hurdles is the fact that infra debt funds for which guidelines were put out by SEBI and RBI a few months back do not have a single taker yet.

Experts feel the infra debt fund model is still unable to address some core issues.

The infrastructure sector is starving for funds with over $1 trillion required for its overhaul.

Many infrastructure debt funds announced with great fanfare were supposed to provide the solution.

But months after providing the guidelines, not a single IDF has been launched .

The industry feels that the IDF set up through the NBFC route will only allow them to invest in PPP projects, after one year of commencement of the project, thereby restricting the number of projects available for the IDF route with just 4 airports, 3 ports falling under this category. 

In addition to this, the cap of 49 per cent promoter stake is also delaying the process for companies to find partners as the biggest challenge for these funds is raising deposits at a competitive rate.

"So a way has to be found to raise money for these IDFs at a rate of interest lower than what the borrowers are already paying since for less risky projects, the market is already offering low interest rates. Settinp up an IDF through MF route maybe more flexible because it does not have project investment restrictions,” Rajeev Oberoi, head of legal and compliance at IDFC said.

Although setting up an IDF through the mutual fund route may be more flexible, dividend distribution tax of 16 per cent and a minimum investment limit of Rs 1 crore can be a turn off for investors. IIFCL is expected though to take this route to launch a $1 bn IDF by end of February.

At this time, the industry wants the government and both the regulators to look into these concerns . For the IDF model to take off for companies like IIFCL, IDBI bank, IDFC and LIC, unless these issues are addressed, it is very unlikely that these funds will hit the market next fiscal.