Mumbai: India Infrastructure Finance Co. (IIFC), the state-owned lender that set up a fund with Blackstone Group LP and Citigroup Inc., plans to borrow $500 million (Rs2,026 crore) from a group of banks in its first overseas loan.
The Delhi-based company has hired BNP Paribas SA, Calyon and Standard Chartered Plc., to raise a 10-year, government-guaranteed loan, said S.S. Kohli, chairman and managing director of IIFC. It will use the funds to finance roads, airports, power plants and other infrastructure projects in India.
Prime Minister Manmohan Singh estimates India’s needs to invest $320 billion by 2012 on infrastructure to lift annual growth to 10% from 9.4% in the year ended 31 March. Foreign investors poured about $60 billion into China in 2006 alone, compared with an investment of about $50 billion in India since 1991, when the South Asian nation began opening its economy.
“The central bank has approved the loan plan and we expect to bring in part of the loan proceeds in about two months,” Kohli said in interviews on 1 June and on Monday.
The loan is part of a $2.5 billion programme to raise funds in India and overseas. The company is also talking to multilateral lenders such as the World Bank, Kohli said without elaborating. It has sanctioned as much as Rs9,240 crore to finance 47 projects, according to its website. IIFC signed an agreement in February with New York-based Citigroup, Blackstone and Mumbai-based Infrastructure Development Finance Co. to start a $5 billion fund to build roads, ports and other utilities. The fund will invest $2 billion in equity and the remainder in debt.
“We decided to raise an overseas loan because of the cost advantage on such funds,” Kohli said. “We may return to the overseas loan market if conditions are found favourable.”
Rising rupee rates make it more attractive for Indian companies to borrow funds abroad. India’s central bank has increased borrowing costs nine times since October 2004 to curb inflation stoked by economic growth.
The bank on 30 March raised its overnight lending rate to a four-and-a-half-year high of 7.75%.
The benchmark rate for companies borrowing in London is more than three percentage points lower than the comparable rate in India.
The six-month dollar-denominated London Interbank Offered Rate (Libor), is at 5.4%, according to data compiled by Bloomberg.
The comparable Indian money market rate is 9%. Indian lenders are raising money overseas to meet credit demand in the country as gross domestic product expands at the fastest pace after China among the world’s major economies. Asia’s fourth-largest economy has grown an average 8.6% a year since 2003, the fastest pace since independence in 1947, attracting more capital from abroad.