IDFC comes of age

Launched with much fanfare and expectation, the Infrastructure Development Finance Corporation (IDFC) was expected to give a big boost to the infrastructure development in the country. For two years, however, it had been at the receiving end - low sanctions/disbursements and high investment income without paying any dividends etc. But, now in its fourth full-year of operations, IDFC is in for better review.

The company recently declared its maiden dividend of 7 per cent on its Rs. 1, 000 crore equity and it is feeling the pinch. The financial institution is now negotiating with Reserve Bank of India (RBI) to alter its loan conditions. Well, a bit of history now.

Five years back when IDFC was formed it structured the Rs. 300 crore and Rs. 350 crore contribution from government of India and RBI as sub-ordinated debt. Amongst other conditions the debt carries an interest rate equivalent to the rate of dividend declared by IDFC.

As mentioned earlier despite earning handsome investment income during the first three years, IDFC did not declare any dividends irking its shareholders who are mainly domestic/foreign financial institutions and banks.

Last fiscal (2000-01) on the back of earnings to the tune of Rs. 314.90 crore (Rs. 288.06 crore during 1999-2000) and an after-tax profit of Rs. 140.44 crore (Rs. 149.23 crore) IDFC decided to declare its maiden dividend amounting to Rs. 70 crore. The immediate impact of this is the interest payment to the centre and RBI to the tune of Rs. 45.5 crore.

As the dividend rate is expected to increase progressively and the opposite likely to happen in respect of open market interest rates, IDFC is now talking with the RBI to delink interest and dividend rates and charge a fixed rate of interest based on market dynamics. In addition the company is also asking the central bank to extend the loan period up to the year 2050 from 2012.

Refusing to throw additional light on the subject Nasser Munjee, managing director and chief executive officer said, ‘I am sure the current condition will be altered as discussions with RBI is proceeding on positive note." (see profile of Mr. Munjee: In pursuit of passion)

Be that as it may, IDFC has turned out impressive performance last year as well as in the first quarter of the current year, despite the slow down in infrastructure development. During the first quarter the company, according to Mr. Munjee, has disbursed Rs. 201 crore (approvals Rs. 437 crore) as against Rs. 16 crore made in 2000-2001.
The cumulative total approvals till this June stands at Rs. 6,747 crore and the disbursements totalled Rs. 1,980 crore across 27 projects.

Comparing IDFC’s performance with the combined figures of ICICI, IDBI and IFCI, Mr. Munjee added that the company approved Rs. 2,467 crore and disbursed Rs. 762 crore as compared to the total approval and disbursement figures for the above three institutions, which stood at Rs. 24,000 crore and Rs. 8,000 crore respectively.

"We are really coming of the age," he added.

One need not argue with him on that. What is interesting to note is the changing profile of IDFC’s advances portfolio. The company is reducing its focus on non-active infrastructure sectors like energy while favouring sectors where activity is seen.

"Our exposure to telecommunications, information technology, integrated transportation and urban infrastructure has increased. Nothing is happening in the power sector," said Mr. Munjee.

At the close of the last fiscal, IDFC’s disbursement for 12 power projects was Rs. 621 crore as against approvals of Rs. 3,655 crore for 30 projects. On the other hand the total approvals for other three sectors were to the tune of Rs. 2,655 crore (30 projects) with actual disbursements totaling to Rs. 1,158 crore (15 projects).

It is not that the company is backing off from funding power projects. On the other hand it is keen on assisting State-promoted projects but links it to reform process. One such project is the 210 MW project being built by Karnataka Power Corporation. This project envisages privatisation of distribution within a specified period and commits the Karnataka government to financial discipline, besides hoping to create a dedicated power sector fund.

Flushed with funds and wanting to expand its area of operation, IDFC decided to lend to food and agriculture sector for post-harvest infrastructure like cold storage, silos etc and has tied
up with Rabobank International for this purpose.

The initiative in agri-infrastructure would include a wide range of financial and non-financial services besides extending debt and equity support to select project. IDFC has also signed a memorandum of understanding with the G.B. Pant University for Agriculture & Technology, Uttaranchal and Rabobank International to synergise initiatives in the areas of biotechnology and agriculture research.

But telecom is one industry where exciting things, like mergers and acquisitions, are happening and IDFC wants to have a slice of that. (see IDFC seeks new avenues for growth).

On the policy advisory front where IDFC is very active, the company is now focussing on the transition issues in privatisation of infrastructure sectors. The company’s advisory team drafted the controversial annuity concept in road financing. "We think this road financing will change the whole of the road project financing," Mr. Munjee hoped.

Similarly IDFC is studying the water and wastewater tariff setting and revision process for Chennai Metropolitan Water Supply and Sewerage Board with specific reference to applicability of alternate indexation mechanism.

The advisory service is not rendered free. In fact IDFC earns a handsome sum from this activity. "The activity brought in Rs. 8 crore are fees last year and during the first quarter of this year it is Rs. 2.5 crore," remarked Mr. Anirudha R. Barwe, chief financial officer.

Speaking about Infrastructure Development Corporation (Karnataka) Ltd (iDeCK) - a three way joint venture between the Karnataka government, IDFC and HDFC to establish state level priorities in infrastructure development - Mr. Munjee said that the company is meeting its cost by its services.

The various initiatives undertaken by iDeCK last year include assignments and approach papers for Rail Infrastructure Development Company (Karnataka) Ltd, National Highway Authority of India, departments of Karnataka government like infrastructure development, urban development, tourism, commerce and industry and Bangalore Mahanagara Palike.

In order to be able to meet its disbursement obligations, IDFC is, according to Mr. Munjee, planning to borrow Rs. 500 crore this year.