NEW DELHI: India could get its first London-listed dedicated feeder fund by September that would raise dollars from overseas investors and plough it into infrastructure debt funds (IDFs) in the country, said two finance ministry official familiar with the development.
“There are foreign investors who are willing to put in long-term funds…The feeder fund is an attempt at luring them,” said a finance ministry official.
The fund could raise $2-3 billion to begin with, said the second ministry official.
India is eyeing several measures to boost long-term stable capital flows in to the country to finance its current account deficit that it hope to contain below $70 billion (3.7% of GDP) in 2013-14. The ministry feels this can help catalyze foreign capital flows into various infrastructure sectors projects that the government has been clearing in a bid to revive investments.Projects worth Rs 1.83 lakh crore were cleared by the cabinet committee on investments in its last meet on Monday.
“Volume of projects eligible for debt funds is rising…Road projects under public-private partnership operations, in kms, will keep doubling every two years since 2011,” said Manish Agarwal, executive director, PwC.
The feeder fund would be structured like a fund of funds that will pool capital from foreign investors to be deployed in IDFs, the official said.
The structure of the fund is being finalised with assistance from the British government. The fund is being promoted jointly by IIFCL, ILFS and ICICI, the official said.
All the three already have IDFs in place.
In a typical structure, there are more than one feeder fund that pool all their money into a ‘master fund’ that is managed by experts and makes all the investment decision. The structure helps keep costs low and achieve better economies of scale. So, typically, there could be more than one feeder fund that can tap into different long-term investors such as pension funds and sovereign wealth funds. The nitty-gritty of the structure is being finalised, the official said.
India’s infrastructure development would require $1 trillion 12th five year plan period of which a large part is to come from the private sector.
The official quoted first said the idea is to tap into foreign investors who may be keen to invest on the India story but are comfortable with investing via financial instruments from one of the international financial centres.
P Chidambaram had in May, during his UK visit, said that the government was exploring the possibility of a feeder fund for IDFs The government has already announced a slew of measures including bond issuance by state run companies, relaxation in external commercial borrowing norms and more attractive deposit scheme for non-resident Indians to boost capital flows. The rupee has declined by over 20% against the dollar since April over fears of the US Federal Reserve tapering its $85 billion monthly monetary stimulus from September as the world’s largest economy recovers.
