Idfc May Float Merchant Bank Arm Next Year

The Infrastructure Development Finance Company Ltd (IDFC) plans to set up a merchant banking arm next year. The outfit, for which IDFC already has a licence, will serve as an one-stop shop, offering a range of services including loan syndication and securitisation to promoters of core projects.

IDFC's proposed foray is in line with its objective, which is not to just provide capital for infrastructure, but to channelise private capital towards commercially viable projects.

Managing director and chief executive officer Nasser Munjee said: "We will start merchant banking activities next year, wherein we can become a major arrangers of funds, undertake syndication and securitisation."

"We will need to offer guarantees, credit enhancements, and the full range of services so that the promoter need not go anywhere else for his needs," said Munjee.

"It is not too premature. Worldwide as projects are raising market resources project financing is diminishing in importance. By next year we will probably start the full range of services for infrastructure, which are more investment bank related rather than just project finance services," he said.

Optimistic about the country's infrastructure potential, Munjee hopes to capitalise on IDFC's head-start over prospective players, who might enter into similar activities.

IDFC's proposed gameplan will also bring about an organisational restructuring, which will see fresh talent being drawn into the company. "I cannot send project finance executives to go and do these deals. It is a different business altogether and has to be a different profit centre," said Munjee.

Munjee sees IDFC's role growing even further with new responsibilities. "Basically private financing initiative is nothing but a merchant banking role. We have to create private sector interest and bring in the investor, for which a lot of legal contracting has to be undertaken," he said.

IDFC has also introduced, for the first time in the country, the private financing initiative (PFI) concept through annuity-based financing of roads. While the government continues to own the infrastructure, it will award the building and maintenance contract to the highest bidder under the PFI route.

Further, in its role to make the projects bankable so as to attract private capital, IDFC intends to support the plan in a manner that its rating can be enhanced.