India Infrastructure Finance Company Ltd likely to fund acquisition of energy assets by Indian companies abroad

NEW DELHI: The government may allow India Infrastructure Finance Company Ltd (IIFCL) to finance acquisition of energy assets by Indian companies abroad. To fund such deals, the infrastructure financing firm’s UK-based subsidiary may raise money through bonds.

"There have been some preliminary discussions. We are evaluating the option," said a government official, requesting anonymity. IIFCL (UK) already has a $5-billion credit line from the Reserve Bank of India.

The move is expected to help private sector companies explore energy assets abroad as they will be able to secure cheaper finance to proceed with such deals.

Asset acquisition overseas requires enormous funds and Indian financial institutions don’t have the capacity to fund such deals, the official said. "This (IIFCL financing such deals) will also bring down the need of Indian firms to rely on foreign banks."

A senior IIFCL official told ET that the companies that use this proposed credit facility would need to get a compliance certificate issued by auditors to ensure that the acquired assets are used for their energy security.

"There are different mechanisms which can be looked at. We are waiting for the government nod," this official said.

In case the energy assets cannot be used in the country, the government may put a condition that 25-50 per cent of the value of the energy sold should be remitted to India.

Experts believe that IIFCL (UK) has to attractively price its bond offering to generate investor interest. "This supplements the government’s funding efforts and since it will be quasisovereign issuance, there will be investors," said Amit Jain, partner at BMR Associates.

At present, IIFCL (UK) offers foreign currency loans to local companies for importing capital equipment required for infrastructure projects that they are executing in India.

It had some time ago reduced its lending rates on foreign currency loans to about 2 percentage points above London Interbank Offered Rate from LIBOR+4.5 per cent.

Business proposals for assistance from IIFCL (UK) mainly come from sectors such as power, airports and fertiliser.

The government has already put in place a policy for acquisition of raw material abroad by state-run firms. Public sector companies can collaborate with private and foreign firms to acquire such assets. Top state-run companies that are classified as maharatna are allowed to invest up to Rs 5,000 crore in such projects, with a ceiling of 25 per cent of their net worth.

The government has set up a Coordinating Committee of Secretaries headed by the Cabinet secretary to examine proposals involving investment beyond the prescribed limits and facilitate quick decision making.