The government proposes to set up a new funding entity on the lines of the India Infrastructure Finance Company (IIFCL) to meet the financing requirements of the mining industry.
The sector has huge funding needs for carrying out detailed exploration of embedded and deep-seated resources of base metals. However, banks are reluctant to lend for exploration. There is also a dearth of equity investments in the area considered to be highly risky.
Sources in the finance ministry said that a formal note on the financing entity would be finalised after a consultation with all stakeholders.
The new agency is expected to be set up as a special purpose vehicle (SPV) owned by the government of India that could mobilise funds from the market and multilateral agencies, such as World Bank and ADB, backed by sovereign guarantee.
The government adopted the same model in the case of IIFCL, which was set up as a wholly-owned company of the government of India in January 2006.
“Domestic banks do not have sufficient credit outstanding for investment in exploration. If the security on the investment is improved, then such investment could be possible through mechanism like IIFCL,” said an official in the finance ministry, adding that the issue came up for detailed discussions at a secretary-level meeting between finance and mining ministries. Sebi officials and chairmen of a few financial institutions were present.
Exploration is a capital intensive and risky business. The mining sector has not attracted major investments despite liberalisation of private and foreign investments, mainly because of the high risk associated with the sector. The proposed new mining Bill (MMDR Bill) seeks to address certain concerns of investors. It proposes to allow certainty of mining related awards — prospecting and reconnaissance licenses — and transferability (sale) of these awards.
In China, the exploration investment is over $300 million annually and is rising every year.
It is expected that once the new funding agency is set up, it would facilitate fund flow at attractive rates to mining companies.
It could also offer take-out financing scheme on the lines of IIFCL to help banks reduce their exposure in and offer long tenure loans to mining companies.
According to an Ernst & Young study, “Currently, India does not have a local capital market where the exploration companies can raise money for their needs.”
The government is yet to work out how a security can be offered on such investments.
A mining ministry official said it was impossible to assure any security to the funding agency as there is no guarantee of success in explorations.
“One does not know what would be the result of exploration, what can you offer as security?” he said.
The sector has huge funding needs for carrying out detailed exploration of embedded and deep-seated resources of base metals. However, banks are reluctant to lend for exploration. There is also a dearth of equity investments in the area considered to be highly risky.
Sources in the finance ministry said that a formal note on the financing entity would be finalised after a consultation with all stakeholders.
The new agency is expected to be set up as a special purpose vehicle (SPV) owned by the government of India that could mobilise funds from the market and multilateral agencies, such as World Bank and ADB, backed by sovereign guarantee.
The government adopted the same model in the case of IIFCL, which was set up as a wholly-owned company of the government of India in January 2006.
“Domestic banks do not have sufficient credit outstanding for investment in exploration. If the security on the investment is improved, then such investment could be possible through mechanism like IIFCL,” said an official in the finance ministry, adding that the issue came up for detailed discussions at a secretary-level meeting between finance and mining ministries. Sebi officials and chairmen of a few financial institutions were present.
Exploration is a capital intensive and risky business. The mining sector has not attracted major investments despite liberalisation of private and foreign investments, mainly because of the high risk associated with the sector. The proposed new mining Bill (MMDR Bill) seeks to address certain concerns of investors. It proposes to allow certainty of mining related awards — prospecting and reconnaissance licenses — and transferability (sale) of these awards.
In China, the exploration investment is over $300 million annually and is rising every year.
It is expected that once the new funding agency is set up, it would facilitate fund flow at attractive rates to mining companies.
It could also offer take-out financing scheme on the lines of IIFCL to help banks reduce their exposure in and offer long tenure loans to mining companies.
According to an Ernst & Young study, “Currently, India does not have a local capital market where the exploration companies can raise money for their needs.”
The government is yet to work out how a security can be offered on such investments.
A mining ministry official said it was impossible to assure any security to the funding agency as there is no guarantee of success in explorations.
“One does not know what would be the result of exploration, what can you offer as security?” he said.
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