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A potential lifeline for infra sector?
Thu, 21 Feb Pre-Open

SpiceJet started the low-air fare price war earlier this year by announcing its 2013 offer in January. A month later, full service carrier Jet Airways recently announced special fares and Air India may soon follow. The Finance Minister, P Chidambaram however has his own plan to help reduce costs and tariffs across infrastructure services. He states that low-cost funds from Infrastructure Debt Funds (IDFs) will help bring down the costs of using roadways and airports.

India recently launched its first US$ 2 bn IDF called the Infra Debt Limited (Infradebt). This is the country's first IDF set up through the non banking finance company (NBFC) route. This fund is expected to invest in core-sector projects under the public-private partnership (PPP) model. This project will have to be operational and have at least completed one year of operation. Thus, major risks such as land acquisition and approvals will be circumvented.

The equity capital of Rs 3 bn for this IDF has been contributed by ICICI group (31%), Bank of Baroda (30%), Citibank India (29%) and Life Insurance Corporation of India (10%). Infradebt is set to finance its first project by the end of March 2013. The fund is planning to raise half the corpus from the domestic market and the other half from foreign sources. There is a large pool of global and domestic capital looking for attractive investment prospects. Investing in India's high potential infrastructure space which is at depressed valuations on account of the negative sentiment may pay off in the long run.

India has set a target of US$ 1 trillion towards infrastructure spending during the 12th five-year plan period (2012-17). Of this, 50% of the proposed amount is expected to be invested by the private sector and an estimated US$ 350 bn is expected to come through debt contribution. Negatives also seem to have bottomed out for the time being, with the central bank cutting policy rates and inflation slowing. This may be the right time for overseas investors to make the most of this opportunity to invest in Indian infrastructure for the long haul.

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