Rating firms to assess Kerala Infrastructure Investment Fund Board

THIRUVANANTHAPURAM: For the first time ever, the state will subject itself to the evaluation of a global rating agency. Technically, the credit-worthiness assessment will be of Kerala Infrastructure Investment Fund Board (KIIFB), which is about to issue general obligation bonds to mop up Rs 5,000 crore from the capital market. However, KIIFB is a government body, propped up solely by guarantees and finances provided by the state government. It is mandatory to secure credit rating before bonds are issued in the capital market. KIIFB has already shortlisted four SEBI-approved agencies, which includes world leader CRISIL, to do the credit rating.

The selected agency will assess KIIFB’s payback model, and also how it will utilise the borrowed money. Importantly, it will assess KIIFB's financial health, which is directly linked to the fiscal health of the state. As it stands, the state has yawning fiscal and revenue deficits. Yet, the finance department is hopeful of a high rating. (A good rating will spike the demand for KIIFB bonds, reducing the interest the Board has to pay for its debt.) To begin with, KIIFB has the inherent advantage of a state government guarantee.

Besides, KIIFB has also put in place mechanisms to inspire confidence among investors. An ordinance issued in August 2016 has made it mandatory for the state to transfer a part of the motor vehicles tax and the whole of petrol cess to KIIFB. The ordinance also allowed KIIFB to employ a range of financial instruments like bonds and innovative financial structures approved by RBI and SEBI like Alternative Investment Funds (AIF), Infrastructure Investment Trust (InvIT) and Infrastructure Debt Fund (IDF). Further, the KIIFB framework is so devised to ensure maximum transparency and nil political interference.

There is a project appraisal wing, the gate-keeper of sorts that will green-light only those projects that have satisfied the most rigorous conditions. Once the work is on, an independent inspection authority will subject it to regular monitoring and supervision. To top it all is the Fund Trustee and Advisory Commission (FTAC), headed by former CAG Vinod Rai. FTAC will issue a ‘Fidelity Certificate’ every six months, certifying that funds are used solely for the purpose they have been provided. FTAC reports will be placed in the Assembly, too.