Public works financier Infrastructure Development Finance Co. (IDFC) may begin raising the equivalent of $500 million in rupees (Rs2,050 crore) within weeks of getting shareholder approval on 28 June to lend to projects in an economy that’s grown 8.6% a year since 2003.
The company plans to sell equity and bonds convertible into shares, managing director Rajiv Lall said in an interview. The timing of the sale would depend on the market conditions and the bonds would be convertible into shares within 18 months, he said.
“One could expect good demand for shares of infrastructure financing companies that have lent to projects which are value accretive,” said Prateek Agrawal, who manages $203 million as head of equities at ABN Amro Asset Management India Ltd in Mumbai.
Building block: IDFC, 49% owned by overseas investors, lends to electricity, road, port and telecommunication projects.
India needs $320 billion over five years to improve its infrastructure, including roads, ports and electricity generation, in order to expand the $854 billion economy, the government estimates.
IDFC on 25 April said it gave Rs7,200 crore in loans to 109 projects in the year ended 31 March, compared with Rs6,000 crore a year earlier.
The lender’s shares have almost tripled since it raised Rs1,370 crore in an initial sale in July 2005. The benchmark Sensex index almost doubled during the same period.
The funds will be raised through “a mix of equity and some convertible structure,” Lall said.
“Whatever the instruments are, they will all convert into equity in 18 months.”
IDFC, 49% owned by overseas investors, started operations in 1997 and lends to electricity, road, port, telecommunication projects, among others. The company has yet to hire any arranger for the sale, Lall said.
IDFC, along with Citigroup Inc. and Blackstone Group Holdings LP, signed an agreement in February to start a $5 billion fund for investment in roads, ports and other utilities. The fund will invest $2 billion in the shares of companies and the remainder in debt, the government said.
IDFC expects to raise $1 billion by December, of which about $500 million is expected to be committed by September, Lall said.
The Mumbai-based company will help in identifying projects for the India Infrastructure Finance Co. Ltd, which will raise the $3 billion debt portion of the fund.
Another fund, run by 3i Group Plc., Europe’s biggest publicly traded buyout and venture capital firm, plans to raise $5 billion to invest in Indian ports, power plants and roads.
India is trying to attract more funds to grow faster. The world’s fastest major economy after China loses 2 percentage points from annual growth because of inadequate power and transportation networks, according to the finance ministry.
Highways, which move almost 80% of the goods transported in India, account for only about 2 % of the country’s 3.32 million km of roads. It takes an average 85 hours to unload and reload a ship at India’s major ports, 10 times longer than in Hong Kong or Singapore, according to government figures.