IDFC plans Rs 1,500 cr infrastructure fund

Infrastructure Development Finance Company is planning to set up a new fund for equity investments in upcoming projects.

The corpus of the fund, modelled on the lines of the India Development Fund, is expected to be around Rs 1,500 crore (Rs 15 billion). A senior IDFC executive said some foreign players were also expected to chip in.

The fund is in addition to the Rs 10,000 crore (Rs 100 billion) special purpose vehicle announced by Finance Minister P Chidambaram in the Budget.

The SPV and the new equity fund come at a time when the demand for funds from infrastructure sectors in picking up.

The India Development Fund, which was slow off the blocks and had a corpus of Rs 850 crore (Rs 8.5 billion) instead of Rs 1,000 crore (Rs 10 billion) proposed originally, has seen disbursals of Rs 330 crore (Rs 3.3 billion), with another Rs 225 crore (Rs 2.25 billion) sanctioned. Two deals in the pipeline are expected to involve investment of another Rs 200 crore (Rs 2 billion).

Similarly, the inter-institutional group led by the State Bank of India has ensured financial closure for over a dozen projects with debt of over Rs 12,000 crore (Rs 120 billion) since January 2004.  IDFC, set up in 1997, had sanctioned a little over Rs 3,000 crore (Rs 30 billion) the end of March 204.

This year alone, it has sanctioned loans of Rs 2,700 crore (Rs 27 billion).

But there has not been much demand from the viability gap mechanism put in place a few years ago. Of the Rs 1,500 crore (Rs 15 billion) provided during the current financial year, only Rs 273 crore (Rs 2.73 billion) was disbursed. In 2003-04, of the Rs 2,000 crore (Rs 20 billion) allocated, only Rs 50 crore (Rs 500 million) was used.

In the last three years, the government has made available Rs 51,000 crore (Rs 510 billion) for financing infrastructure projects. First came the Rs 1,000 crore (Rs 10 billion) India Development Fund, which took time to take off.

Then came the Rs 40,000 crore (Rs 400 billion) IIG and now the SPV. Add the second Infra Equity Fund and the corpus swells to Rs 52,500 crore (Rs 525 billion). There is also the IDFC, which was set up in 1997.

The modalities for the SPV, which is aimed at making long-term funds available, for infrastructure projects are being worked out by the finance ministry, which will shortly circulate a cabinet note.

The SPV is expected to be housed with the inter-institutional group with a handful of people coming on deputation from banks and financial institutions. The SPV will raise rupee loans backed by government guarantee.

But there are some doubts about its prospects. "There is nothing new in what the government has suggested. We will have to wait and watch for the government to announce the details," Shipping Secretary DT Joseph said.

But the pick-up in demand is evident. "There has been higher demand in the last 12-15 months. There are deals out there and there is some serious effort (by borrowers and lenders) to close out transactions," said Luis Miranda, President and CEO, IDFC Private Equity, which manages the IDF.

Officials in the finance ministry are, however, not satisfied with the pace at which infrastructure financing is taking place. They point to the IDF, which has sanctioned funds for two hotel projects of the five projects cleared by it. Also the IIG, has been virtually dormant in sectors like roads, ports and airports, which is also part of its mandate.

"Finances are not such a big constraint as the policy framework in the infrastructure sectors," said a banker.

One reason for the low demand is low returns, said Darius Pandole chief operating officer of the IDFC Asset Management Company.

"At present it was not the paucity of funds but lack of viability that was restraining the infrastructure sector," he said.