IIFCL listing on the cards could give a fillip to infra financing

While it signals a return to the government's strategic divestment strategy, the amount raised will fall far short of the spending target for the sector

First, the good news. The India Infrastructure Finance Company Ltd (IIFCL) will issue its Initial Public Offering (IPO) in the first quarter of FY26, that is, between April and June 2025. It is likely that Finance Minister Nirmala Sitharaman will announce the stake sale in her Budget speech due on February 1. The bad news is despite the IPO, the amount of money raised for infrastructure finance by all companies will be less than half the annual run rate needed to reach the target of Rs 100 trillion in spending for the sector. 

An equity sale in IIFCL will also mean the government of India will, after a long time, return to the strategic sale option in the disinvestment market. The disinvestment in LIC in 2022 was the last time the finance ministry sold a significant stake in any company. 

IIFCL, which is 100 per cent owned by the government of India, was expected to enter the equity markets in FY24 but various regulatory hurdles put paid to those plans. One was the increase in risk weight for loans for infrastructure finance companies brought in by RBI. 

So far, the government has not divested its stake in any comparable institution and so the interest level for the IPO is high. Earlier-generation development finance institutions like IDBI and ICICI were merged into banks. Infrastructure finance institutions  like PFC, REC and IRFC are also fully owned by the government. These companies therefore raise only debt from the markets. 

Government managers, therefore, expect that the IIFCL stake sale would bring back some excitement into the infrastructure financing market. This is necessary because while a far larger number of projects are being executed, the backlog is still considerable, even as some of the delays have begun to ease up. 

“The pace of project execution, which was the usual bane of the sector, has sharply improved. So has the presence of large financing institutions like Nabfid and NIIF,” said Soumyajit Neogi, director, India Ratings. 

With governments, both at the Centre and the states, having begun to put in larger sums of money in capital formation, the pace of infrastructure creation has got a fillip. But the winners, as of now, are still the greenfield projects such as roads and renewable energy. In all other sectors the accent is on brownfield projects. 

Even in IIFCL’s portfolio, the overwhelming percentage are brownfield projects. Of these, thermal power expansion projects dominate. 

Another reason why the domestic debt market for infra projects has taken off is the government’s reluctance to allow any project developer to raise external commercial borrowing. “Before companies can tap the foreign market, the government asks them to explore domestic options,” said a leading official of a global infrastructure firm focused on what it says are sustainable infrastructure projects. 

The official said this has encouraged the development of a vigorous domestic financing market for such projects. “The caveat is that no one is willing to finance projects that will involve fresh clearances like land, for power and so on,” this official added. Even within renewables, where the target is 60 GW of power to be added every year, the run rate is less than half at 24 GW. Given that each GW approximately requires Rs 6,000 crore of investment, the latter means an investment pipeline of Rs 1.44 trillion. For the volumes of debt available in the domestic market, that is a stiff asking rate. Adding other sectors to this requirement is an even more daunting ask. 

With the Union Budget FY26 due in two weeks, sector experts are convinced the pace of infrastructure creation will see a massive push. But they caution that there shouldn't be any blow-ups like that of IL&FS in 2019, which led to a stalling of project execution across sectors.