Complex fund structure stall infrastructure equity fund

Even as the finance minister has planned to set up a special purpose vehicle (SPV) for financing Rs 40,000 crore to Rs 50,000 crore for infr...

Even as the finance minister has planned to set up a special purpose vehicle (SPV) for financing Rs 40,000 crore to Rs 50,000 crore for infrastructure projects, the much talked about infrastructure equity fund has not made any progress mainly due to the complex proposed structure of the fund.

Under the proposed structure infrastructure equity fund would be in the form of a mutual fund registered with Sebi. A mutual fund called ‘IDFC Infrastructure Fund’ would be constituted in the form of a trust and ‘The Infrastructure Equity Fund’ would be a scheme constituted under IDFC Infrastructure Fund (IDFC would be the sponsor of this fund).

The proposal also stated setting up of a 100 per cent subsidiary of IDFC in the form of IDFC Asset Management Company with a capitalisation of Rs 12 crore to function as the fund manager.

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In a recent meeting with the finance minister, FIs have made it clear that with such a complex structure none of the FIs, banks and insurance companies (those who were expected to pitch in for the infrastructure equity fund) are ready to pitch in.

According to FI sources, the entire process is a duplication of efforts. “Since there is a nodal FI to handle infrastructure funding in the form of IDFC, what is the purpose of setting up another AMC for the purpose”.

Infact, IDFC is yet to set up the AMC. According to IDFC sources, there is little rationale in setting up the AMC when the FIs are not ready to pitch in with the funds.

What the FIs want is simple structure in the form of straight equity participation or else funding infrastructure projects under a nodal FI, as is done in the case of the other projects where there is a lead FI. FIs conveyed to the finance minister to go for such a simple structure instead of the proposed AMC.

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The proposal to the finance ministry had also stated that IDFC-AMC’s income streams would mainly be from two sources—fund management fees and treasury income from deployment of its surplus funds in short/medium term instruments. The fund management fees, as per the Sebi regulations, would be structured on rear-ended basis. Sebi regulations permitting, the fund management fees could be further refined to be based on “funds committed” instead of being purely based on funds under management.

The board of directors of IDFC-AMC would define the treasury deployment policies bearing in mind liquidity considerations and counter-party risks, the proposal had stated.

However, in keeping with the proposals IDFC would follow up the matter with Sebi chairman in a subsequent meeting and also submit application for the registration of the mutual fund. The FIs are also expected to meet RBI on the issue of relaxing banking regulations on capital charges for investments by banks in the fund.

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