IFC mulls turning debt into equity

As part of its efforts to provide support to sectors and firms hit by credit crunch and fall in demand, the International Finance Corporation (IFC) is looking at converting some of its debt investments in Indian companies into equity.

Some of the schemes that IFC has floated for this purpose include Global Trade Finance and Bank Recapitalisation Fund.

IFC’s portfolio of Indian investments is over $3 billion. It had made a $1-billion investment in the year ended June 2008. The global lender, which makes such investments across various sectors, including infrastructure, through equity as well as debt instruments, now expects to add a similar amount by June this year.

IFC Manager (Infrastructure Advisory) Vipul Bhagat said that the value of equity investments made by the corporation has come down, reflecting the fall in stock markets. But he stressed that this was also an opportunity for long-term equity investments in viable cases.

The corporation would look at converting parts of its debts into equity in companies that were in its investment portfolio. Bhagat pointed out that IFC, unlike portfolio investors, looked at companies with a long-term view.

Elaborating on the corporation’s present investment strategy, especially in the light of the turmoil in global markets, Bhagat said that IFC was working closely with existing clients rather than new firms.

While IFC’s portfolio size in India has grown rapidly (by about $1 billion a year), Bhagat said the corporation might not be able to repeat the same level of investments on its own and, hence, it was in the process of forging alliances with other investment entities.

According to Bhagat, IFC will follow a four-pronged strategy. One, it will focus on the huge area of infrastructure development in public as well as private sectors through public-private partnerships.

Two, it’ll ensure inclusive growth by supporting medium-size enterprises, improving rural productivity, encouraging financial inclusion and extending aid to low-income regions. Three, the corporation will work on projects that promote energy efficiency and that use renewable energy. And finally, it’ll take up projects that promote regional integration.