Mumbai: With an eye on global liquidity and the increasing global investor interest in the Indian economy, infrastructure conglomerate Infrastructure Leasing and Financial Services Ltd (IL&FS) plans to embark on a major refinancing drive this financial year, said a senior executive of the firm.
The group is looking to refinance debt to the tune of Rs15,000 crore this financial year, said Ramesh C. Bawa, managing director and chief executive at IL&FS Financial Services Ltd.
Last year IL&FS refinanced debt worth Rs5,300 crore for its various assets such as roads and wind energy, he said. According to IL&FS’s annual report for the year 2015-16, the group had consolidated long-term borrowings of Rs54,665.1 crore and interest outgo of Rs5,497.9 crore.
A large chunk of the refinancing this year will involve raising funds from overseas banks and financial institutions and through various alternative routes such as masala bonds and masala loans.
“Right now the financial institutions, specially the PSU (public sector undertaking) banks, are under pressure. There are a large number of NPAs (non-performing assets) and banks are booking losses. It’s becoming difficult for them to take more exposure to infrastructure assets. For players like us, we are continuously busy implementing infra projects and we cannot wait for the cycle to come back, so we have to look for alternative avenues of funding," said Bawa.
The refinancing exercise will not only provide savings in terms of reduction of interest rates, but it will also provide cash for deployment in fresh projects, he said.
Bawa added that he expects the exercise to achieve a saving of 150 basis points on the group’s overall interest cost. A basis point is one-hundredth of a percentage point.
Alternative sources that the group is tapping for its refinancing exercise include rupee-denominated bonds or loans from overseas investors and state government annuity road bonds.
The group is planning a green masala bond issuance of almost $500 million for refinancing the debt of its wind energy business, which has operating assets of 800 megawatts. Another masala bond issuance of up to $200 million is being planned for the financial services vertical of the group.
Green bonds are issued by firms to fund environment-friendly business activities or assets.
Last year IL&FS refinanced Rs1,730 crore for five state road projects in Jharkhand through the first state government annuity bond in the Indian debt market. Another such bond issuance is planned for the current year.
The group will also refinance debt through rupee-denominated loans or masala loans, a product it pioneered last year, said Bawa.
In November, its road development arm IL&FS Transportation Networks Ltd raised a Rs340-crore ($50 million) rupee-denominated loan from international financial institution Export Development Canada, which was followed by a $30 million masala loan from Mauritius-based AfrAsia Bank Ltd and SBM (Mauritius) Bank Ltd for IL&FS Financial Services Ltd in March.
In fiscal 2016-17, the group refinanced a total of $325 million of debt through external commercial borrowings, including the above mentioned masala loans.
The IL&FS group is also tying up with various foreign banks and financial institutions including large pension funds for raising overseas capital for its refinancing needs.
“We have entered a formal understanding with some of the large overseas banks such as ICBC (Industrial and Commercial Bank of China) for refinancing as well as funding projects, to the tune of $1 billion. We are also working on this kind of relationship with other institutions in China, Japan, Taiwan and Hong Kong," said Bawa.
The group is also in talks with large global pension funds, including pension funds from Canada, Bawa added.
The refinancing drive is also aimed at reducing its overall exposure to domestic debt providers.
“Sometime back we used to be depending on domestic institutions to the extent of 90%. In the last 4-5 years, we have dedicatedly worked towards reducing that dependence and we are now depending on the domestic market only to the extent of 40-45% of our financing needs," said Bawa.