State-Owned Reinsurer GIC To Hold 15% In Credit Enhancement Fund
The credit enhancement fund is being set up to boost credit rating of infra bonds.
State-owned General Insurance Corporation of India (GIC Re) will hold 15 percent in the credit enhancement fund, two senior officials with direct knowledge of the matter told BloombergQuint. Indian Renewable Energy Development Agency (IREDA), another government enterprise, is likely to hold 5 percent stake in the fund, they added.
The credit enhancement fund, which was announced in Budget 2016-17, is being set up to raise the credit rating of bonds floated by infrastructure companies and to make it easier for investors to invest in such securities.
A GIC Re spokesperson confirmed in an emailed response that the state-owned reinsurer “has obtained in-principle approval of competent authority to acquire 15% stake in the credit enhancement company”, adding that the special purpose vehicle for credit enhancement would be called “NICE (National Infrastructure Credit Enhancement Ltd.)“.
An email sent to IREDA to confirm whether it would hold 5 percent stake in the fund remained unanswered till the time this article was published.
As per current deliberations, the government's wholly-owned subsidiary, IIFCL – which will initially spearhead the fund – will hold 20 percent in the fund.
In addition to GIC India’s 15 percent stake and IREDA’s 5 percent stake, LIC and IIFCL are slated to hold 20 percent each in the fund, BloombergQuint had reported on January 3. SBI, Bank of Baroda may hold 10 percent each while Power Finance Corporation Ltd. (PFC) is expected to hold 5 percent, as per the same report.
The remaining 15 percent is likely to be equally distributed among IIFCL and banks if the fund does not get more takers, according to the officials quoted above.
While BloombergQuint’s January 3 report said that Rural Electrification Corporation (REC) would hold 5 percent in the credit enhancement fund, one of the two officials quoted above said REC would not participate in the fund as its primary mandate is to invest in government-backed securities, and the company does not prefer public-private-partnership issuances.
The credit enhancement fund will not be attractive for multilateral institutions like the Asian Development Bank and International Finance Corp. Ltd, as the central bank wants to make credit guarantee fund more “conservative", one of the two officials quoted above said. The central bank wants the entity to have a higher capital adequacy ratio, he added.
Capital adequacy ratio is used to measure a bank's financial strength by using its capital and assets.
IIFCL will incorporate the company under the Companies Act, 2013 and will be mostly registered as a infrastructure finance company non-banking finance company (IFC-NBFC).
RBI Approval Awaited
IIFCL’s deputy managing director, Sanjeev Kaushik, told BloombergQuint on Monday that the company is awaiting RBI’s approval, and the fund will be operationalised once the Reserve Bank of India (RBI) gives a “green signal”.
As soon as we get RBI’s approval, we will be ready to operationalise the fund...the company is being incorporated, and we will have to file an application to SEBI (Securities and Exchange Board of India).Sanjeev Kaushik, Deputy MD, IIFCL