India Infrastructure Finance Company (IIFCL) provided some colour on its fundraising. The government had stated that IIFCL would be allowed to raise Rs100bn in FY09 and another Rs300bn in FY10 through tax-free bonds to refinance lending for infra projects.
IIFCL has already raised Rs74 billion out of the planned Rs100 billion bond issue. The cost of funds raised was at 6.85% per annum.
The company is in the process of raising the remaining Rs26 billion at the same rate. The government has yet to issue guidelines for the proposed Rs300 billion of funding expected to be raised in FY10.
The funds would be utilised for refinancing new projects, which have been bid out after Jan’09. Since it would take 4–6 months for financial closure of these projects, these funds would be utilised only in 2H FY10.
IIFCL funding does not include existing projects, which would have an immediate impact on funding of infra projects and boost growth.
The government is looking to get the new projects off the ground that would enter the construction period in 2H FY09. This ties with our cyclical upturn thesis during that period.
We believe Larsen and Toubro (L&T) is the best way to play the cyclical upturn. The stock may face near- term headwinds due to newsflow on Satyam.
Note that due to recent events, our rating on Satyam Computer Services has been removed and our outlook remains under review.
As many of the existing projects may face funding issues, we would like to remain with sectors that continue to see decent credit flow. The power sector, especially generation capacities being put up by government-owned companies / entities, remains on track.
We continue push Bhel as our top pick as we think it provides the highest visibility of earnings with 4.5x of order backlog, 90% government projects and doubling of capacity.