The Kerala Infrastructure Investment Fund Board (KIIFB) has been in the news after the CAG’s critique of its role as an “off-budget” financing vehicle in the state. The auditor feels KIIFB’s liabilities could finally fall on the state budget, potentially drawing the revenue-deficit state into a debt trap. The CAG has expressed this view for the second time in two years, even as the state assembly had rejected the observation when it was first made.
KIIFB was established as a body corporate by the Kerala government to channelise funds for critical and large public infrastructure projects. It was the first sovereign agency in India to access overseas debt market when it raised Rs 2,150 crore from ‘Masala bonds’ listed on the London Stock Exchange in May, 2019. KM Abraham,CEO of KIIFB, talks to FE’s Rajesh Ravi about the progress the institution has achieved in its objectives. A retired IAS officer who was earlier on the Sebi board, Abraham is also serving as the chief principal secretary of chief minister of Kerala.
Are you satisfied with the performance of the KIIFB as a growth driver of the state economy?
Indeed I am. A key indicator for the level of development in any state or nation is the provisioning for infrastructure, both social and physical. This is because infrastructure helps in the realisation of the latent potential of the state and its people, through its impact on productivity of the financial and human resources. This further has a direct impact on the quality of life of the citizens of the state.
However, most Indian states are locked in a regressive deadlock where large deficits in infrastructure provisioning prevent the realisation of their latent potential, and limited fiscal resources prevent significant investment in infrastructure provisioning. The situation in Kerala was no different.
In 2016, government of Kerala set for itself the ambitious target transforming the infrastructural landscape in Kerala. KIIFB was designated as the agency for achieving this ambitious objective, but though a unique and innovative model.
Till date, KIIFB’s board has approved Rs 64,000 crore worth of physical and social infrastructure projects across a range of sectors including hospitals and health centres, schools and colleges, roads and bridges, water supply and sanitation, electricity and communication networks, industrial parks, and cultural complexes etc. In terms of disbursements, KIIFB has already disbursed Rs 14,000 crore towards various projects. Since the onset of the pandemic, KIIFB has cumulatively disbursed more than Rs 8,400 crore till August 2021.
What are the important achievements of KIIFB?
In its functioning, KIIFB has sought to continuously raise the standards of infrastructure development in the state by adopting best practices followed by major development financing institutions in the world. Currently, KIIFB has the expertise in handling the entire infrastructure life cycle including identification of projects, proposal development, project appraisal, quality assurance, fund mobilisation and project management. I would like to look at our achievements from three broad perspectives, firstly in terms of completion of projects, secondly in terms of organisational evolution and lastly in terms of fund-raising activities.
Regarding organisational evolution, the current internal control mechanisms and governance at KIIFB is akin to international standards. KIIFB has an internal audit wing which performs a Risk Based Internal Audit (RBIA). KIIFB had set-up a full-fledged Environmental Social & Governance (ESG) team and has thereby mainstreamed the adoption of ESG principles in KIIFB projects. Another notable achievement that I would like to highlight in the organization’s evolution front is the setting up of a consultancy wing within KIIFB. On the fund-raising front, issuance of ‘Masala Bonds’ was as one of our key achievements.
Another proud feat on the fund-raising front is the ongoing transaction with International Finance Corporation (IFC) for which a Term Sheet has been issued by IFC and approved by KIIFB’s board. This will be a green financing transaction and expected to close during Q3 FY22.
S&P says Covid-19 pandemic will significantly worsen Kerala’s credit metrics…
S&P Global Ratings had lowered the ratings on KIIFB following a similar action on the government of Kerala in the last fiscal as in their view the Covid-19 pandemic will significantly worsen Kerala’s credit metrics. As per the rating methodology, the ratings on KIIFB mirror the ratings on Kerala State and S&P does not assess KIIFB’s stand-alone credit profile because the same is not a rating driver. S&P has already concluded their annual review for this FY and has affirmed the rating of KIIFB and Kerala State at ‘BB-/B’ and there was no downgrade this year.
The latest rating rationale from S&P Global Ratings for this financial year again emphasises the point that the safeguards and support mechanisms deployed for KIIFB are more than what S&P have generally observed in state-level GREs in India.
At the apex of KIIFB’s governance mechanism is the Fund Trustee and Advisory (the FTAC) which was introduced in the amendment of the KIIF Act in 2016. The FTAC acts as the trustee of the Fund and ensure that all investments by KIIFB serve the purpose and the intent of the KIIF Act and that there is no diversion of the funds of the Board. FTAC also issues a Fidelity Certificate every six months certifying that the application of funds and the investment of surplus funds is in conformity with the provisions of the KIIF Act and Scheme.
Any plans for more Masala bonds given the fact that the state needs a massive stimulus for growth in the context of the pandemic?
KIIFB’s Medium Term Note (MTN) programme is set up for issuing tranches/ notes which cumulatively add up to Rs 5,000 crore and KIIFB has only availed a tranche of Rs 2,150 crore through the issuance of Masala Bond. KIIFB is indifferent towards international or domestic funding and only prioritises access and pricing of the funds.In the present scenario,KIIFB’s borrowings has been primarily from the domestic markets lately.
Any plans for raising funds in the domestic market?
There will be a significant outflow towards the approved projects in FY22-23 amounting to approximately Rs 20,000 crore and accordingly, KIIFB’s board has accorded sanction to borrow up to Rs 20,000 crore by end of FY23.In the domestic market, primarily the ones being tapped are term loans and issuance of Non-Convertible Debentures.For Non-resident Keralite’s, KIIFB offers the ‘Pravasi dividend scheme’ and ‘Pravasi Chitty’.
In the context of a second term for the LDF government do you see any change in the role or any additional mandate for KIIFB?
During the last term of the LDF government, though several crucial projects were completed and handed over, a significant number of projects were still only in the planning phase. So, during this term of the government, the activities of KIIFB will be more oriented towards ensuring the timely execution of such approved projects. That being said, over the next five years, KIIFB could still consider taking up important and urgent projects in the state, subject to a project pruning exercise on the current portfolio of approved projects of KIIFB, to remove some non-starters.