Financial institutions showing interest in PE fund, says PFC

Financial institutions showing interest in PE fund, says PFC

New Delhi: ICICI Bank Ltd,Infrastructure Leasing and Financial Services Ltd(IL&FS), Infrastructure Development Finance Co. (IDFC) and IFCI Ltd have shown interest in state-owned Power Finance Corp. Ltd’s proposed $1 billion (Rs 5,270 crore) private equity fund, said PFC’s chairman and managing director Satnam Singh.

PFC plans to form a joint venture in which it will have a 49% stake and the selected partner the rest. IL&FS and IFCI could not be immediately contacted. An IDFC official, who didn’t want to be named, said he wasn’t aware of the development. An ICICI Bank spokesperson declined to comment.

“This partnership will form a trust and there can be many funds," Singh said. “Initially, we will float a size of $300 million... We will also later invite other partners for funding. We can also increase the fund size."

PFC and Rural Electrification Corp. Ltd (REC), another state-owned entity, together account for 60% of the money lent to power firms in India. They loan money to develop new power projects and finance restructuring of power distribution utilities. PFC sanctioned 61,532 crore as loans in 2010-11, of which it disbursed 31,865 crore and reported a net profit of 2,619.57 crore.

In another development, PFC plans to hold road shows by the month-end in Singapore, Hong Kong and London to raise $1 billion through external commercial borrowings to ease funding concerns of the Indian power sector. It has already appointed Royal Bank of Scotland Group Plc. (RBS) and Bank of America (BoA) as merchant bankers.

This comes at a time when the Indian power sector has been bogged down by huge capital requirements. The government is worried about the funding scarcity, which threatens to worsen an energy deficit that is seen as a key bottleneck in efforts to sustain and boost economic growth.

India has a power generation capacity of 1,82,345 megawatts (MW). The funding ability of Indian institutions is restricted by central bank limits on how much they can lend to each sector or business group. The sector, which is struggling with funding shortfalls, will need an additional $400 billion investment in the 12th Five-year Plan period starting April 2012.

The 11th Plan had set a target of adding 78,577MW of power generation capacity, requiring, at current estimates, some 10.60 trillion of investment. The power ministry estimates a 4.2 trillion funding shortfall. Indian banks are also exposed to increased risk of defaults on loans to firms linked to the power sector. This comes as distribution firms across India, most of which are owned by the states, are finding it difficult to raise working capital and owe a staggering 1.77 trillion to banks, an indicator of the crisis unfolding in the sector. Mounting losses at state electricity boards and delays in the execution of new power plants have made recovery difficult.

In the current fiscal, PFC has sanctioned loans worth 29,000 crore and disbursed 15,000 crore. It has a current loan book of 1,10,000 crore.