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The ADB's proposed US$128 million guarantee for India infrastructure bonds is positive but the scale is too small for it to have any real market impact at this stage.
Up to five infrastructure project bonds in India will be guaranteed by the Asian Development Bank (ADB) in order to mobilise funds that currently cannot invest in the debt, but the scale of the project could be too small to make a real difference to the country's infrastructure sector.
The bond guarantee facility, developed with the India Infrastructure Finance Company Limited (IIFCL) is worth US$128 million, and the ADB as well as domestic finance companies will provide partial guarantees for rupee bonds issued by Indian companies to finance infrastructure projects.
This will boost the credit rating of the debt from around'BBB-' to'A' or'AA', thus enabling pension and insurance companies to invest in the bonds, according to Juan Miranda, director general of the South Asia Department at the ADB.
"We might be able to develop a home grown bond market for projects by bringing in the considerable savings that exist, located in the pensions and insurance houses in the country, which can't take part in projects [at the moment] because they have to be of a certain quality," he said to Asiamoney PLUS on September 20.
The first bond guaranteed will be issued by GMR Group, which wants to sell a bond to refinance a loan taken to build on a toll expressway linking Hyderabad and Bangalore. Over the next three years, Miranda hopes the scheme will guarantee up to five similar infrastructure project bonds.
He argued that unless schemes like this are put into...