IIFCL’s UK unit to raise $1 billion

New Delhi: The UK subsidiary of India Infrastructure Finance Co. Ltd (IIFCL) is planning to raise $1 billion overseas as it looks to tap alternative sources of funding to lend more.

At present, IIFC (UK) is funded by a $5 billion Reserve Bank of India (RBI) line of credit. But since the central bank is unlikely to extend the credit line, IIFC (UK) is considering other sources of funds. If permitted, it plans to expand into funding of acquisitions of Indian firm overseas.

“IIFC UK will raise $1 billion this year to meet its funding requirements,” a government official said, requesting anonymity.

IIFC (UK) lends to Indian companies implementing infrastructure projects in the country, or co-finances their external commercial borrowings (ECBs) for such projects mainly to meet their capital expenditure outside India.

Though IIFC (UK) has sanctions in place to the tune of around $5 billion, its disbursements were around $1.2 billion since the time the company started operations in 2008.

Chairman and managing director S.B. Nayar said the timing of the fund-raising has not yet been decided.

“The funds will be utilized for our own lending and to support India’s forex reserves,” he said, adding that IIFCL is awaiting amendments to the scope of lending so that it can even fund acquisitions by Indian companies abroad.

“The plan is to provide support to Indian companies who are eyeing acquisitions abroad, in line with the support that the Chinese government provides to Chinese companies,” Nayar said. “The empowered committee has to approve changes to SIFTI (Scheme for Financing Viable Infrastructure Projects) for this.”

According to a Mergermarket Merger and Acquisition (M&A) trend report published in January 2014, China led the BRIC (Brazil, Russia, India and China) countries in M&A deals in 2013 with $163 billion of transactions, followed by Russia ($84 billion), Brazil ($47.9 billion) and India ($20 billion).

In 2012, IIFC (UK) had reduced its lending rates to Libor (London interbank offered rate) plus 200 basis points (bps) from Libor plus 400-475 bps.

However, after RBI’s intervention, the interest rates now are more market-linked.

Libor is a global benchmark. One basis point equals one-hundredth of a percentage point.

IIFC (UK) primarily lends to public-private partnership (PPP) projects with its loans treated as external commercial borrowings.

In March, IIFC (UK) had provided in-principle approvals to 48 proposals with the aggregate loan amount of around $5 billion.

“There is a lot of money that is available overseas. Foreign investors have now turned bullish on India and will not hesitate to subscribe to bond issues,” said Jyoti Prakash Gadia, managing director of Resurgent India Ltd, an investment bank. “What will be the key is to tap the right sources for funds and at the right time.”