SPV to fuel infrastructure

The Government is set to launch a special purpose vehicle SPV to finance infrastructure projects in the country. Officials told The Indian...

The Government is set to launch a special purpose vehicle SPV to finance infrastructure projects in the country. Officials told The Indian Express that a Cabinet note would be forwarded by the Finance Ministry by the month-end.

Under the proposal being finalised by the Finance Ministry and Planning Commission, the SPV would raise long-term debt in the form of bonds from domestic and, if needed, international markets. These bonds would be guaranteed by the Government.

Officials said that the SPV8212;it is yet to get a name8212;would bridge the financing gap that banks face while raising long-term hedge funds due to liability mismatch. The tenure of money raised by the SPV would be 20-30 years.

The proposal to form such an SPV was mooted in the 2005-06 Budget by Finance Minister P. Chidambaram.

Officials said that the SPV is part of a larger UPA plan to kickstart capital-intensive infrastructure in the country. As part of the blueprint, the inter-institutional group IIG of banks was set up last year to resolve 8216;8216;bankability8217;8217; issues.

After the SPV, the next initiative is 8216;8216;viability gap funding8217;8217; to promote public-private partnerships and ensure project viability. Under this, the Centre would directly bridge project finances, if promoters or projects face problems during any stage of execution.

Once these policies are in place, the Government intends to draw out a list of infrastructure projects and invite companies from across the world to participate, officials said.

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This push of infrastructure reforms is being spearheaded by Prime Minister Manmohan Singh, who heads the inter-ministerial committee on infrastructure, of which Planning Commission Deputy Chairman Montek Singh Ahluwalia is a member.

Sources said that the SPV will have the same security that banks have for direct debt schemes. The overall limit for such bonds would be based on the total number of government-guaranteed schemes at the end of a financial year, as the Centre has to limit its guarantees to half per cent of the GDP.

Officials said that the SPV would earn interest income from its lending8212;to meet administrative expenses8212;and be monitored by the Finance Ministry.

HOW THE SPV WORKS

8226; Once a promoter approaches a bank for long-term debt, the proposal would be put to the inter-institutional group IIG of banks

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8226; The IIG will inform the SPV of the quantum of money needed

8226; Based on market situation and number of proposals, the SPV would organise funds to given directly to the project firm or to financing bank

8226; The entire process can take upto three months