In an effort to raise investments in operational and stabilized infrastructure projects, Government of India will be launching Credit Enhancement Fund.
According to an official source, the Asian Infrastructure and Investment Bank will take a 10 per cent equity stake in a ₹500-crore credit enhancement fund that seeks to raise investments in operational and stabilised infrastructure projects. China is the largest shareholder in AIIB. The dedicated fund will be set up as a non-banking finance company (NBFC) with IIFCL as lead sponsor and financial institutions and public-sector banks as shareholders. The fund will be set up in July. The fund will help in raising credit rating of bonds issued by infrastructure companies and facilitate investment from long-term investors.
Bond financing of infrastructure projects needs to be mainstreamed to deal with the asset-liability mismatch related to debt funding of public-private partnership (PPP) projects, mainly from banks. Typical credit rating of PPP projects being implemented through Special Purpose Vehicles is BBB while the regulatory threshold for funding by insurance and pension funds is AA. In 2017, a new seven-point credit rating scale for infra projects based on the expected loss methodology was introduced to help channelise long-term funding to infrastructure projects. The Insurance Regulatory and Development Authority has accepted EL 1 (lowest expected loss) plus A rating.