Credit Enhancement

 

 
Regular Credit Enhancement Scheme of IIFCL
 
1.    Title
1.1.The scheme would be known as “Credit Enhancement Scheme” for viable infrastructure projects and would come into force from the date of this scheme’s approval by the Competent Authority.
 
2.    Eligibility
2.1.Credit enhancement Scheme would be extended to commercially viable infrastructure projects which satisfy the following:
2.2.The infrastructure project should be from the infrastructure sectors as defined under SIFTI.
2.3.The minimum stand-alone credit rating of the infrastructure project / Proposed Bond structure to be credit enhanced should be at least BBB.
2.4.The amount raised by way of credit enhanced bonds shall be used only to repay the existing debt partially or fully.
2.5.The infrastructure project should have achieved COD / provisional COD as on the date of extension of Guarantee/Credit Enhancement by IIFCL.
 
3.    Extent of Credit Enhancement
3.1.IIFCL can extend partial credit guarantee to the extent of 20% of Total Project Cost (up to 40% of Total Project Cost with a backstop guarantor/risk sharing partner). 
3.2.However, total exposure of IIFCL will be a maximum of 20% of the Total Project Cost including exposure by way of direct lending.
3.3 However, the extent of guarantee / credit enhancement extended by IIFCL to any infrastructure project for its project bonds shall be limited to the extent which enhances the credit rating of the project bonds to its desired credit rating (minimum AA rating) subject to a maximum of 50% of the total amount of Project Bonds issued.
 
4.    Nature of Credit Enhancement
4.1.IIFCL will provide credit enhancement by way of unconditional and irrevocable partial credit guarantee to enhance the credit rating of the proposed bonds.
 
5.    Security
5.1.Investors to the project bond will have pari-passu charge, on the assets of the project bond Issuer, with other senior lenders in the project, if any. IIFCL will have a charge, which may be subordinated to the project bond Investors and other senior debt lenders. However, IIFCL will have pari-passu charge to the extent of invoked guarantee on either acceleration of the Project Bonds and/or termination of the concession agreement and/or enforcement of security after paying its obligations under the Guarantee.
5.2.In addition to above, IIFCL to explore securing corporate guarantee/undertaking/personal guarantee from the sponsor/holding company/promoters or any other form of security to secure its exposure.
 
6.    Risk Sharing / Backstop Guarantee
6.1.IIFCL may enter into risk sharing agreements with Asian Development Bank/ World Bank / other institutions including domestic banks and financial institutions in respect of any Guarantee / credit enhancement extended/to be extended  by IIFCL.  Risk sharing arrangements could be in the form of a guarantee, reinsurance, back stop guarantee, unfunded risk participation or any other agreements which is intended to reduce/cover/share the risk of IIFCL.   Such arrangement to be entered into by IIFCL on terms based on merits & requirements of each case and shall be subject to the approval of Board.
6.2.IIFCL may also enter into such arrangement for transactions (defined based on number of transactions or amount of transactions etc.) with any institution stated in the paragraph above.
 
7.    Tenure
7.1.The minimum tenure of the project bonds to be 5 years with or without a lock-in. However, the complete repayment of Bond Issue should be scheduled to happen within 85% of the Economic Life of the Project.
 
8.    Fee Charged by IIFCL
8.1.The Guarantee / Credit enhancement fee to be charged by IIFCL shall be based on the external rating of the project, bond yields, market conditions, Risk analysis, fee to be charged by the backstop guarantor, if any, etc. The guarantee fee to be charged by IIFCL shall however not be less than 0.5% p.a. of its exposure.
8.2.The terms of payment of Guarantee / Credit enhancement fee such as frequency (monthly/quarterly/annually) or time of payment, mode of payment etc. may be decided as per the requirements of each case.
8.3.The total guarantee fee may be charged by IIFCL in any form and break up such as upfront fee, processing fee, recurring fee, commitment fee etc. and may be worked out by IIFCL at the time of transaction.
8.4.IIFCL may share the Guarantee fee with the institutions providing reinsurance/backstop guarantee in the manner & proportion depending on the merits & requirements of the transaction.
 
9.    Appraisal
9.1.IIFCL shall conduct an independent appraisal of the credit risks of the project solely or jointly with an institution providing back stop guarantee / reinsurance etc. as mentioned above, if applicable. Alternatively, IIFCL may engage an outside agency / specialist / subsidiary of IIFCL for appraising the same.
 
 
10. Other Features
10.1.The promoters of the project should not be on the defaulters list of Reserve Bank of India (RBI) or Credit Information Bureau (India) Limited (CIBIL) and no criminal proceeding has been pending against the promoters. 
10.2.In case, IIFCL notices any of the following before the guarantee becoming effective:
10.2.1.Any fraud or forgery committed by the Borrower or promoters of the project
10.2.2.Any criminal proceeding has been instituted against the borrower or the promoters of the project
10.2.3.It may terminate the guarantee even if executed. However, once the Guarantee is effective it would not terminate (as the nature of Guarantee is unconditional & irrevocable).
10.3.Any other Term used in the scheme and not assigned specific meaning here would have the meaning as defined in SIFTI. Any term not defined either here or in SIFTI or any other additional term may be defined by IIFCL as and when such need arises by IIFCL and such term would have a meaning as assigned by solely by IIFCL. Further, IIFCL would have the sole right to assign meaning, clarification etc., as the case may be, in case of any contradiction in the meanings or any clauses in this scheme. Such meaning, clarification etc. as assigned by IIFCL would be final.   
10.4.Modifications to this scheme may be made at the level of Board of Directors of IIFCL subject to the approval of the Department of Financial Services, Ministry of Finance, and Government of India.
 
 
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                                    Annexure to Credit Enhancement Scheme
 
 
      Processing Fee for IIFCL Sanction
 
The following processing fee shall be applicable for transactions under consideration for Credit Enhancement by IIFCL.
 
S. No.
 
Proposed Bond Issue Amount
 
(Rs Crore)
 
Processing Fee
1
Up to Rs 200 crore
Rs 5 Lakh + Applicable Taxes
2
Above Rs 200 crore & up to Rs 500 crore
Rs 10 Lakh + Applicable Taxes
3
Above Rs 500 crore
Rs 15 Lakh + Applicable Taxes
 
Further, in case of transactions involving multiple SPVs (2 or more) the processing fee may be charged as per above table or Rs 2 Lakh + Applicable Taxes per SPV, whichever is higher.
 
The fee is payable post IIFCL sanction. The payment of processing fee is not contingent on placement of bonds.
 
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The Scheme will come into force with effect from 30th March 2015