IDFC to slash stake in infra debt fund to 49%

IIDF raising Rs 1,500 cr through non-convertible debentures to buy out loans to road projects

Infrastructure finance company IDFC Ltd is planning to cut stake in IDFC Infrastructure Debt Fund (IIDF), its wholly-owned subsidiary, to 49 per cent. Sources said IDFC was in talks with foreign investors in this regard.

IDFC, which is set to turn into a bank in October next year, has to cut its stake in IIDF to 49 per cent in a year to meet regulatory requirements.

IIDF is raising Rs 1,500 crore through non-convertible debentures (NCDs) to buy out loans to road projects. Icra has assigned the proposed debenture offering an ‘AAA’ rating, with a stable outlook.

The role of infrastructure debt funds (IDFs) has become increasingly important, as banks are finding it difficult to have additional exposure to infrastructure projects. They are also staring at asset-liability mismatches, as deposits used to finance projects are short-duration ones but loan repayments are spread over long periods.

TRIMMING MUSCLE

• Ahead of turning into a bank, IDFC plans to reduce its stake in subsidiary IDFC Infrastructure Debt Fund (IIDF) to 49%
• The infrastructure finance company is in talks with foreign investors to bring them on-board into the wholly-owned subsidiary, IIDF
• IDFC has to dilute its holding to 49 per cent in a year to meet the regulatory requirements
• IDFC is set to turn into a bank from October 2015

According to Reserve Bank of India (RBI) norms, an IDF, formed under a non-banking financial company (NBFC) structure, should only invest in debt securities of public-private partnership infrastructure projects that have completed at least a year of commercial operations.

Currently, IIDF is focusing on road projects backed by the National Highways Authority of India (NHAI). It is planned assets worth Rs 800-1,000 crore will be transferred from IDFC’s balance sheet to IIDF in three-six months.

Icra’s rating of IIDF’s NCDs factors in the comfortable liquidity position in the medium term, as RBI norms state an IDF-NBFC can raise funds by issuing bonds of a maturity period of at least five years. As the investment is in projects completing at least a year of commercial operations, the repayment is likely to start immediately.

Icra said as the income of an IDF-NBFC was exempt from tax, it could park excess funds in fixed deposits or liquid mutual funds and get acceptable returns.