BackIL&FS infra fund firms up investments
The MoU gives each of the companies a 2% stake (10% collectively) in the fund
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Mumbai: IL&FS Financial Services Ltd (I-Fin), the non-banking finance subsidiary of Infrastructure Leasing and Financial Services Ltd (IL&FS), has received commitments from five local public sector insurance companies to invest Rs750 crore in its infrastructure debt fund (IDF) by March 2014, doubling the fund’s asset under management to Rs1,500 crore, managing director and chief executive Ramesh Bawa said on Monday.
General Insurance Corp of India (GIC), The New India Assurance Co Ltd, United India Insurance Co Ltd, National Insurance Co Ltd and The Oriental Insurance Co Ltd, together signed a memorandum of understanding (MoU) committing “a regular flow of investment for the next two years upto a maximum permissible 10% of their investment corpus," Bawa said in a telephone interview.
The MoU which was signed in the presence of economic affairs secretary Arvind Mayaram, gives each of the companies a 2% stake (10% collectively) in the fund, but more importantly allows I-Fin to pitch for funds from large overseas investors.
“Lack of local investors was restricting us so far and since we now have long term local investors tied-up now, we can go to overseas pension funds, insurance companies and sovereign wealth funds to raise money," Bawa who has a $1 billion target for the fund in the next 12 months said.
The debt fund was so far managed by I-Fin along with Life Insurance Corp. of India (LIC), which owns 10%. The fund was the first to be formed after the government’s announcement in budget 2012. Infrastructure debt funds were launched with the intention to help raise funds to fulfil a $1 trillion infrastructure investment target by March 2017.
Under the scheme, I-Fin will buy infrastructure loans from eight public sector banks, namely, Allahabad Bank, Bank of India, Canara Bank, Central Bank of India, Indian Bank, Indian Overseas Bank, Oriental Bank of Commerce and UCO Bank, to free the bank books from these long-term loans.
The money from the fund will be used to fund projects to build transport, water, power and energy projects across the country, Bawa said.
“We have sanctioned three assets and another seven-eight proposals are lined up by 31 March. We are in discussions with large pension and insurance funds from Australia and Canada and sovereign wealth funds from the middle east and multilateral agencies from Japan to raise money and expect to achieve our immediate fund target of $1 billion before 12 months," Bawa said.
Japan International Cooperation Agency (JICA), and Japan Bank for International Cooperation (JBIC) are the two multilateral agencies in that country.
Vishwas Udgirkar, senior director at audit and consultancy firm Deloitte Touche Tohmatsu India Pvt. Ltd, said I-Fin’s fund raising has already been delayed due to procedual issues and the company will continue to face challenges to achieve its funding target.
“Infrastructure is closely linked to the economy and until India’s policy is streamlined, governance is improved and international investor confidence is won-back the $1 trillion infrastructure investment target looks like a big challenge," Udgirkar said.
Besides the above mentioned local insurance companies Bawa also expects to raise funds from SBI Pension Funds Pvt. Ltd, LIC Pension Fund Ltd and UTI Retirement Solutions Ltd.
The company expects to offload a maximum of 29% to foreign investors, keeping 51% with itself after already selling 20% to local insurance companies, Bawa said.
Among the foreign investors the company is in talks with is Hong Kong-based Hamon Group of Investments to which it expects to sell stake worth $25 million with commitments of investing $200 million.
“We are still awaiting their confirmation for the proposed $200 million and once we receive it we will complete the deal. We intend to fund assets which are nearing completion because the risk is then at the minimum," Bawa said.
Udgirkar from Deloitte, however, said fund deployment is difficult when the company is still collecting money. “A lot of time has already been lost to form the exact structure of IDFs and investment guidelines for pension and investment funds. Deployment has not yet started because raising funds has been difficult," he said.
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