IL&FS energy unit plans Rs4,000 cr IPO

IEDCL will use the proceeds of the IPO to meet capital requirements and fund expansion as economic growth accelerates

Mumbai: Infrastructure Leasing and Financial Services Ltd (IL&FS), a developer and financier of public works, is looking to raise as much as 4,000 crore through an initial public offering (IPO) of its energy arm IL&FS Energy Development Co. Ltd (IEDCL), said three bankers familiar with the development.

“They have hired two investment banks to initiate the groundwork and they are still meeting other bankers," said one of the three bankers, who is involved in the process. “They want to review the full-year results of March and then file their papers with the markets regulator."

A second banker said the company was seeking to raise 3,500-4,000 crore through the IPO by the end of this year.

None of the three bankers wished to be identified.

IEDCL will use the proceeds of the IPO to meet capital requirements and fund expansion as economic growth accelerates.

India’s economy is forecast to grow 7.4% in the current fiscal year, compared with a revised 6.9% last year, under a new system of calculating gross domestic product.

“From time to time we look for capital raising through various forms of fund raising initiatives including an IPO," IL&FS said in response to questions sent via email on Friday. “Presently, the board is considering various options and nothing has been firmed up. We will inform you about the same as and when we decide the same."

Mint had reported in January that IL&FS was planning to list its energy, waste management and environmental consultancy assets.

IL&FS started its energy business in 2008 through IEDCL with the objective of developing, owning and operating power generation and power transmission assets in India and abroad. Currently, IEDCL has around 1,000 megawatts (MW) of power generation capacity.

IEDCL has 3,000MW of capacity in various phases of implementation and around 10,000MW of capacity in the project development phase. Its 1,200MW thermal power project in Cuddalore, Tamil Nadu, is due for completion in 2015. IEDCL expects to achieve a gross generation capacity of 14,000MW by fiscal 2019, according to information on the firm’s website.

On the transmission side of the energy business, IEDCL has around 250km of transmission lines in operation, 410km under implementation and 145km connecting Nepal and India in the development phase.

“For coal-based power companies, the resolution of the coal mining issue is a positive move and if the equity markets continue to show the current momentum then in the next 12-14 months we will see more power companies tapping the equity markets," said Salil Garg, director of India Ratings and Research Pvt. Ltd, the local arm of credit assessor Fitch.

In the last few months, several power firms, such as Ind-Barath Power Infra Ltd, Hindustan Powerprojects Pvt. Ltd and Welspun Renewables Energy Pvt. Ltd, have announced their intentions to list on the bourses. “However, only those companies which have resolved all their issues and have reached a certain scale will be able to attract good valuations," said Garg.

IL&FS is also planning to raise as much as $100 million through a qualified institutional placement (QIP) of shares with institutional investors for IL&FS Transportation Networks Ltd (ITNL), its transportation infrastructure development arm, and has mandated four banks to manage the sale, said two people involved in the process.

“We have started working on the QIP, the roadshows will begin in March and it will be closed soon," the second person cited above added.

In July, the firm had informed stock exchanges that its board had approved a plan to raise 1,000 crore.

In a filing to BSE, the firm said funds would be raised through the QIP route or through a sale of convertible bonds, subject to market regulations. “We have taken an enabling resolution for fund-raise through QIP and as a matter of board policy have no comments to offer on market speculation," said Mukund Sapre, executive director at ITNL.

In September 2014, Mint reported that infrastructure companies such as ITNL, Hindustan Construction Co. Ltd, GVK Power and Infrastructure Ltd and Hindalco Industries Ltd had delayed their plans for fund-raising because of poor market conditions.

Last year, a slew of infrastructure companies raised capital through the QIP route but infrastructure firms’ share prices fell by more than half in some cases since the issuance, causing investors to shy away from investments in this sector.

ITNL has 13,195 lane km under its road assets portfolio, comprising a mix of toll- and annuity-based projects. It also has a presence in other sub-sectors such as mass rapid transport systems, urban transportation infra systems, car parking and border check post systems.

The firm also has international operations in the roads sector in Spain, Portugal, Latin America, the United Arab Emirates and China.

Since January, six companies have raised 2,555 crore through QIPs, including two real estate firms and one infrastructure developer. In all of last year, 33 listed companies had raised 31,684.22 crore from QIPs, according to data from Prime Database and BSE.

“Capital markets are good but they are not conducive enough for large issuances to sail through at this time. Energy sector still has to overcome issues like coal allocation, regulatory issues and if in next three-six months’ time things are cleared then the situation is viable for these issuances," said Anil Singhvi, chairman at Ican Investments Advisors, a boutique investment banking firm based out of Mumbai.

“Most of the infrastructure QIPs which took place last year are still trading below their issuance price and thus investor participation is still some time away in these sectors," Singhvi added.

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