September 06, 2008

PFC to float overseas subsidiary to finance power sector

It is reported that Power Finance Corporation is considering a proposal to float an overseas financial arm for the development of the infrastructure needs of the power sector and a sub committee of a standing group of power minister's on financial issues will be formed to consider implementation of the scheme.

Once the committee gives its final recommendation, PFC will be given a formal approval to set up its externally focused investment arm or a special purpose vehicle. The arm will be operated from an overseas international financial centre such as Mauritius and will leverage India's foreign exchange reserves to provide financing for purchasing machinery and equipment abroad.

As per proposal, the PFC arm will borrow foreign exchange to the tune of around USD 5 billion per annum from Reserve Bank of India. In lieu, PFC will issue bonds to the apex bank. The FOREX money will then transferred to the corpus of PFC arm so as to provide foreign currency loans to Indian power companies to meet their requirement of raw material machinery imports. It has been proposed that loans from PFC arm will not be treated as external commercial borrowings.