IDFC to launch infrastructure bonds in October

India’s Infrastructure Development Finance Company (IDFC) is expected to launch the first tranche of its tax-free infrastructure bonds in the first week of October. The infrastructure lender is aiming to raise up to INR34bn which will be used for lending to infrastructure projects.

India-focused Infrastructure Development Finance Company (IDFC) is planning to launch the first tranche of its tax-free infrastructure bonds in the first week of October, according to a senior official at the firm.

Vikram Limaye, executive director of IDFC, told Infrastructure Investor in an interview that the firm is still waiting for final clarification from the finance ministry. “The amount is uncertain right now since we are waiting for some clarification from the ministry of finance. Depending on the clarification received from the ministry, we will have capacity to raise either up to INR23.50 billion (€386 million; $515.8 million) or up to INR34 billion,” he added.

Limaye said that the venture is a win-win for both government and private investors. “From a government perspective it helps intermediate retail savings directly for infrastructure financing and from an investor’s perspective is a very attractive instrument for deploying a portion of surplus liquidity to get incremental tax savings and contribute to the development of the country’s infrastructure, he added.”

The bonds will be issued for a period of ten years and funds raised will be used for lending to infrastructure projects such as energy and transportation, including roads.

Recently, the Indian government announced plans to issue tax-free infrastructure bonds through IDFC, Industrial Finance Corporation of India, Life Insurance Corporation, and a Non-Banking Finance Company classified as an Infrastructure Finance Company by the Reserve Bank of India (RBI), according to norms set by RBI.

The number of bonds issued by any company has been restricted by the RBI to 25 percent of the incremental infrastructure investments made by the issuer during 2009-10.

The bonds, with a minimum tenure of 10 years, have the potential to raise about $6.5 billion in 2010-11. The purpose of the funds is to encourage investment and bridge the gap in India’s infrastructure sector.

India has targeted an ambitious $500 billion of infrastructure investment in its five-year plan to 2012 and $1 trillion by the end of 2017. It is looking for heavy private investment in order to reach these targets.