Govt wants to ease foreign investment in infra finance bonds - sources

Last Updated: Wed, Aug 24, 2011 13:50 hrs

/NEW DELHI (Reuters) - The government is in talks with the Reserve Bank of India (RBI) and stock market regulator to allow infrastructure finance companies to issue bonds to foreign investors, four sources with direct knowledge told Reuters on Wednesday.

Allowing foreign investors to buy such bonds is intended to increase funding available for big-ticket projects such as roads and power plants in India, where inadequate infrastructure drives inflation and acts as a brake on growth.

India requires infrastructure investment of $1 trillion over the five years beginning April 2012, the government estimates.

In its budget in February, the government raised by an additional $20 billion, to $25 billion, the limit on foreign institutional investment in corporate bonds of duration longer than five years issued by companies in the sector.

Now, New Delhi is contemplating expanding the definition of eligible issuers to include infrastructure finance firms.

"There is a suggestion from the ministry of finance for relaxing the definition of infrastructure companies so that infrastructure finance companies can be included," one of the officials told Reuters.

So far, just $500 million to $600 million of the existing quota for foreign institutions has been used up by FIIs due to the restriction, dealers said. Part of the sluggish interest results from lack of supply from top-rated issuers, they said.

"How do you raise money in this choppy market? This is a big question. The sector requires huge funds. So we have suggested any company registered as an infrastructure finance company should be allowed to issue such bonds," said a second official.

Many infrastructure finance companies, including Power Finance Corp, Rural Electrification Corp and Indian Railway Finance Corp, are frequent issuers of bonds but foreign institutions are not allowed to buy such bonds under current rules.

(Reporting by Suvashree Dey Choudhury;Editing by Clarence Fernandez)

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