IFCI to raise Rs 2,000 cr via long-term bonds in Q3

Delhi-based government-owned finance company IFCI plans to raise up to Rs 2,000 crore through 10-year bonds to finance medium and long-term projects.

IFCI has been incrementally raising funds mostly from banks at base rate plus a spread of 25 basis points, while the share of low-cost capital market borrowings in incremental funding has been low.

Malay Mukherjee, CEO and managing director, IFCI, said it would be ready with resources when demand picks up in the second half. Although fresh project proposals are small in number, sanctioned credit is to the tune of Rs 3,600 crore.

The ground work for the proposed bond offering is underway and it would soon be filed with the Securities and Exchange Board of India (Sebi). According to an IFCI executive, who did not wish to be named, the offering could hit the market in the third quarter of the current financial year.

When asked about the preference to tap the market, Mukherjee said IFCI could raise cheap funds from the capital market compared with banks, which lend at rates above the base rate.

At present, the base rate for most banks is above 10 per cent, while the yield on a 10-year paper is of 8.50 per cent. Thus, the money raised from banks would carry lending rate in excess of 10.25 per cent, whereas bonds with a tenure of 10 years and more would attract coupon rate 8.5 per cent, giving a saving of at least 150 basis points.

IFCI’s ability to raise funds at competitive cost through capital market instruments would be critical for its competitiveness.

IFCI’s liquidity profile remains comfortable, on the back of long-dated borrowings and sizeable liquid investments, as reflected in no-negative cumulative mismatches in any of the buckets as on March 2014.

During FY14, IFCI reported a net profit of Rs 508 crore on a total income of Rs 2,951 crore. The total loan portfolio stood at Rs 18,635 crore as on March 31, 2014.