New Delhi: IFCI Ltd, India’s oldest development financial institution, is reinventing itself as an infrastructure company. The firm has bid for as many as 16 road, port and power projects worth around Rs10,250 crore.
IFCI said it has entered into partnerships with construction companies such as Patel Engineering Ltd, KMC Constructions Ltd and Gayatri Projects Ltd, among others, to execute projects if it wins any of the bids.
“We have been supporting infrastructure projects as a term lender and now we are looking at playing the role of a developer as well,” an IFCI spokesperson said in an email response to Mint. “We are targeting at becoming a significant player in the infrastructure sector in next two-three years.”
IFCI’s decision has been influenced by the tough regulatory environment for finance companies. The firm is not allowed to access public deposits and is dependent on banks for funds, making pure lending in infrastructure unviable.
Industry experts said that as long as the financial risk of being a developer was sufficiently thought through, and the company tied up with other firms that had actual project development experience, entering the infrastructure space was a good idea.
“Very few institutions can stay out of infrastructure,” said Vinayak Chatterjee, chairman of consultancy firm Feedback Ventures Pvt. Ltd and a member of IFCI’s board in 2007. “When I was there, there was a decision to get far more into infrastructure financing, which was not something they were hitherto known for.”
“The upside on developer risk is far higher than the few percentage points as a lender. Also you can lend to them (the consortia) as a lender of first choice,” Chatterjee said. “As long as they have sufficiently thought through the financial risk and they have the right partners, that is what I would look for.”
The development finance institution’s plans come even as the government looks to catalyze investments worth some Rs20 trillion over the 11th Plan, which terminates in 2012. The highways ministry alone awarded projects worth in excess of Rs60,000 crore last year.
“We are focusing on thermal, hydro and wind power, highways and port sectors. We have been allotted three hydropower projects in consortium in Himachal Pradesh and have also submitted bids for eight hydropower projects in Uttarakhand,” IFCI’s statement said.
IFCI, which in the early half of this decade went through a liquidity crisis and posted losses, did not have an easy entry into the infrastructure business.
An official of the National Highways Authority of India, who did not want to be identified, said the firm had bid for several projects. “At first, there was confusion over whether the company’s articles of association allowed it to bid for highway projects, leading to its disqualification. However, subsequently the company produced documents that showed that it could bid,” the official said.
IFCI’s current strategy has come in the wake of an unsuccessful track record in development financing after the economic liberalization of 1991. The Union government bailed out the company by rolling over its outstanding debt, which was followed by an unsuccessful attempt to bring in a strategic partner in 2007.
The possibility of inducting a strategic investor in the near future has not been ruled out by the government, which has representatives on the company’s board. As shareholding issues have not been settled, the possibility of being granted a banking licence by the central bank is slim, a member of the board, who did not want to be named, said.
As on 31 March 2009, infrastructure contributed 16.5% of IFCI’s outstandings —9% to power and the balance to ports, telecom and bridges.
IFCI’s financial position improved last fiscal. Gross non-performing assets were down to Rs3,810 crore as on 31 March, against Rs5,152 crore a year ago. Provision coverage is 98%. In the March quarter of fiscal 2010, profits from operations before other income and write-back of provisions were Rs242 crore, against Rs109 crore in year-ago period.
Sanctions were up 75% to Rs7,016 crore, while disbursements at Rs6,054 crore have grown by 82%. The balance sheet size at the end of the fiscal year was Rs18,172 crore, up 36% during the year. The capital adequacy ratio is 18%. The company’s net worth is Rs3,152 crore.