Reserve Bank of India on Wednesday issued guidelines allowing partial credit enhancements by lenders in favour of private infrastructure companies.
Lenders will be able to provide these enhancements to special vehicle projects issuing bonds for infrastructure projects. This enhancement will also be available for bonds issued by non-bank finance lenders with an asset size of Rs 1,000 crore.
The new norms allow lenders to provide a partial credit enhancement, in the form of an irrevocable credit line. This credit line will be drawn upon when there are cash flow issues affecting bond repayments
Lenders can issue such credit enhancements within a 50% limit of the size of the bond issue. It is also limited to issuers with a credit rating of BBB or above. To be sure, BBB is the lowest investment grade. According to the regulator, such an enhancement will aid in enhancing credit rating.
Such a credit enhancement will open the doors for A+ rated borrowers to access investors such as insurance companies and mutual funds. Currently, these companies are only able to access the bank credit market to fund projects.
The lender providing the partial credit enhancement shall not directly invest in the bond it is backing. The lender may, however, provide other credit facilities if needed.
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