Mumbai: Infrastructure Leasing and Financial Services (IL&FS) Ltd has raised a Rs340 crore rupee-denominated loan, or masala loan, from international financial institution Export Development Canada (EDC).
EDC is the export credit agency of Canada, which helps its exporters enter new markets. The agency provides Canadian firms with insurance products, financing products, connections to international markets and knowledge of doing business in those markets.
“India is a priority country for the government of Canada. We would like to increase our relationships and our transactions in India. The importance of India shows given that we are the first international financial institution to be able to do a rupee loan,” said Mairead Lavery, senior vice-president (business development) at EDC.
IL&FS will use the rupee financing from EDC for its roads business, IL&FS Transportation Networks Ltd (ITNL).
“We are using these funds for refinancing the existing debt of some of our infrastructure projects, as well as to support fresh infrastructure projects. This loan has been taken in ITNL, which is the roads vertical, so it will be used only for road projects,” said Ramesh C. Bawa, managing director and chief executive at IL&FS Financial Services Ltd.
According to Bawa, raising the rupee-denominated debt from EDC is part of the group’s plans to diversify the financing sources for its various infrastructure projects.
“We have significantly diversified our sources of financing. Today, almost 40% of our financing is in the form of overseas funds. The focus is to reduce funding from banks. We have also started raising funds from non-banking sources such as pension funds and insurance companies,” said Bawa.
EDC has been in India for more than 30 years, and has had a permanent presence in the country since 2005. It has two offices in India—in Delhi and Mumbai. It plans to significantly increase its lending relationships in India. The Canadian agency currently has a loan book of $4 billion in India.
“We would like to grow that to $10 billion by 2020. EDC sets up offices in countries where we see that there is opportunity for Canadian companies to increase trade with that particular country . We believe that is very true for India,” said Lavery.
So far this year, EDC has lent to over 30 clients in India and expects to close 2016 with total lending of $1.2 billion. “The ability to have rupee loans as against US dollar loans is very important as it removes the exchange rate risk for Indian companies. We will see a lot of interest going ahead. As of now, a lot of people either haven’t heard too much about it or don’t understand it fully yet. As the understanding about the product grows, there will definitely be more demand,” Lavery said.
IL&FS to float InvIT
Separately, IL&FS is planning to raise around $700 million (approximately Rs4,500 crore) by floating an infrastructure investment trust (InvIT) of its road assets, Bawa said. “We will possibly be the first InvIT. We are likely to hit the market sometime in end of December,” he said. The group plans to raise the funds through a trust that will house four mature road assets, he added. In March, Mint reported that ITNL had initiated the process of listing its road assets as an InvIT.
InvITs are trusts that manage income-generating infrastructure assets, typically offering investors regular yields and a liquid method of investing in infrastructure projects. Developers can use the long-term funds raised to unlock value in completed projects or repay debt associated with them.
InvITs received a much-needed push from the finance minister during this year’s Union budget when he announced that any distribution made out of the income of such trusts having a specified shareholding will not be subjected to the dividend distribution tax.
IL&FS held a 70.79% stake in ITNL as of 30 June.
ITNL has 30 road projects, of which 13 are operational and another five to six projects are likely to be operationalized in the next fiscal year. The operational build operate transfer (BOT) projects are a mix of annuity and toll-based ones and are implemented through special purpose vehicles controlled by the company.
In 2014, the Securities and Exchange Board of India (Sebi) allowed Indian firms to launch real estate investment trusts and InvITs to help cash-strapped developers get easier access to funds while also creating a new investment avenue for institutions and high-net-worth individuals.
In May, Sebi released norms for the public issue of units of InvITs—the final set of major rules that were awaited before firms could start marketing their issues.
On 20 September, Mint reported that Reliance Infrastructure Ltd (R-Infra) has applied to the capital markets regulator to register an InvIT for its toll road projects, citing two people aware of the development.
Earlier on 9 September, IRB Infrastructure Developers Ltd, filed the draft red herring prospectus (DRHP) for its InvIT with Sebi to raise as much as Rs4,300 crore.
Power transmission line developer Sterlite Power Grid is looking to raise funds through an InvIT, Mint reported in September. The company plans to place three operational assets under a trust. These include its Bhopal Dhule transmission project, Jabalpur transmission line and East North Interconnection transmission line.
According to the company’s website, Sterlite has built a portfolio of eight projects spanning nearly 6,000 circuit kilometres, entailing an investment of about Rs10,000 crore.
Sterlite is looking to raise Rs2,000-2,500 crore through the public offering of its InvIT.
In May, Mint reported that the Adani Group, the conglomerate with interests in resources, logistics and energy, had initiated preliminary discussions with investment bankers for the creation of infrastructure investment trusts across its businesses such as power, ports and transmission lines.