IIFCL refinances loan worth Rs 4,000 crore

State-owned India Infrastructure Finance Company (IIFCL) on Thursaday said it will lend up to Rs 4,000 crore (Rs 40 billion) in January-March quarter to two government companies - REC and PFC - as part of its loan refinance business.

"Till September we have refinanced loans worth Rs 1,500 crore (Rs 15 billion). We will lend another Rs 3,500-4,000 crore (Rs 35-40 billion) to REC and PFC by the end of this fiscal," IIFCL Chief Executive Pradeep Kumar said.

Under the refinancing scheme, IIFCL lends money to core sector companies at lower rates to fund such projects.

These companies usually then lend to infrastructure players at a marginally higher rates. "With this the total refinancing of the company will reach to Rs 5,500 crore (Rs 55 billion) by March 2011," Kumar added.

IIFCL is aiming to raise Rs 1,200 crore (Rs 12 billion) through issuance of tax-free infrastructure bonds to use for lending purposes. The issue opens tomorrow and closes on March 4.

The company will issue 10-year bonds with 8.15 per cent interest compounded annually and 15-year bond with 8.30 per cent.

The bonds would have a face value of Rs 1,000 crore (Rs 10 billion) and an investor would have to subscribe to a minimum of five bonds.

The bond issue is under Sec 80CCF of the Income Tax Act, wherein an investor can avail a deduction of up to Rs 20,000 in the taxable income for the current financial year.

The Rs 20,000 deduction is over and above the Rs 1 lakh deduction, under Section 80CC of the Income Tax Act.

The bonds would be listed on the Bombay Stock Exchange. As on September 30, 2010, IIFCL disbursed total loan worth Rs 11,133 crore (Rs 111.33 billion).

This was higher than Rs 9,976 crore (Rs 99.76 billion) disbursed in March 31, 2010. Further, the company is also in advanced stages of discussion with the government for launching the credit enhancement scheme.

"We have submitted our proposal regarding the scheme to the government and expect to get a nod for it soon," IIFCL Chairman and MD S K Goel said. Under the scheme, IIFCL, would guarantee infrastructure bonds with 'BB' or 'BBB' ratings, which will enhance their credit rating to 'AA' or 'AAA'.

These bonds, on receiving better rating, could be subscribed to by insurance companies and pension funds, thereby, creating a better market for infrastructure bonds.