SK Goel, CMD, IIFCL, explains to CNBC-TV18 that the guarantee by the government and government agencies along with the special mandate to issue 20-year bonds will see increased investor interest in the issue.
Below is an edited transcript of the interview on CNBC-TV18.
Q: You have lent a significant portion of your annual disbursement target of Rs 30,000 crore. Will funds from the offering aid in disbursing more than the target of Rs 30,000 crore?
A: IIFCL has sanctioned Rs 71,000-crore worth of projects. Out of that, more than Rs 26,000 crore has been disbursed. We have target of disbursing up to Rs 30,000 crore. The funds we are raising now will be utilised for the entire year of 2013-2014. So, our target remains Rs 30, 000 crore, but the utility of this fund is very essential for the disbursement of the loans sanctioned.
Q: With inflation at over 7.5 percent for the last three years, why do you think your offering of 7.89 percent will be attractive?
A: IIFCL is the only institution which has been permitted by the government to raise the bonds up to 20 years. Bonds offered by other infrastructure finance companies are only for 10-to-15 years. And for our 20-year bonds, we are offering 7.90 percent which I think, makes investment into IIFCL one of the best options. We launched the offer on Wednesday morning and the response received has been quite encouraging because in a low-interest scenario investors want to insulate their returns and avail of tax benefits.
Q: What is your target? Do you expect to raise Rs 9,000 crore?
A: Our minimum target is to raise Rs 1,500 crore which could go up to Rs 9,215 crore on increased investor response. This is to allow the involvement of more investors because when we launched an issue in 2009 at only 6.85 percent, the response was overwhelming. In today's offering, the rate is much better and we don't want this issue, which offers tax benefits, to be cornered by a few investors alone.
Q: What about take-out financing? The Parikh Committee Report suggested that IIFCL should start take-out financing. What is your opinion? Do you think it will improve the financing environment?
A: Take-out finance was operationalised in January 2012 after modification. After that, we have sanctioned more than Rs 6,000 crore as take-out finance of which Rs 2,006 crore has already been disbursed. The scheme has taken off very well. Now as far as suggestions about linking it with IDF is concerned, I think the IDF has to be operationalised and the particular asset management company of the IDF has to decide what it wants to do with the corpus of the IDF.
Q: By when do you think the IDF will be operationalised?
A: Our IDF is in the final stages of being operationalised. We have complied with the requirements of Sebi. So, I expect Sebi to grant approval to the IDF in 10 days' time. We are ready to act immediately on the grant of approval.
Our asset management company has been already registered, the board of trustees is already in place and we have firm commitments from domestic and foreign investors to put money into our IDF. In two months after approval, we will be able to operationalise the IDF, maybe before March.
Q: What is the capital adequacy of IIFCL? What is your cost of funds and what do you make by way of returns on your funds?
A: As capital is fully provided by the government of India, our capital adequacy is around 16 percent. The overall cost of funds with IIFCL is about 7.26 percent. The sources of these funds include the government of India, the ADB, the World Bank, Germany-based KfW and borrowings from the market via tax-free bonds.
Q: Normally, how much are your returns?
A: Our normal returns are around 10 percent.
Q: No bad loans as yet?
A: No. We have a mandate to lend 80 percent to the public-private-partnership (PPP) sector which carries the guarantee of the government and government agencies.
Q: Your loans are guaranteed by the government?
A: Yes.
Q: NHAI, who is one of your guarantors, has not been able to fulfill its target for FY13. What is your opinion on the slump in infrastructure projects and financing? Do you think it will pick up?
A: So far, there has been no occasion to invoke the guarantee despite delays in completion of roads. We are in communication with NHAI which has assured us that the issues will be sorted out and our primary focus is to complete the project, not to invoke guarantees. But the guarantee affords adequate safety in financing these projects.
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