IDFC says maiden float hinges on market scene

The Infrastructure Development Finance Company (IDFC) will take into account stock market conditions before finally deciding on its initial public offering (IPO).

"We are not 100 per cent certain that the IPO will happen. It all depends upon the market," said Rajiv B Lall, managing director & CEO. With a capital adequacy ratio (CAR) of 36 per cent, IDFC has adequate capital to take care of its fund requirement for three years.

IDFC also proposes to shortly launch a second infrastructure development fund with a corpus of about Rs 1,300 crore. This follows IDFC having committed the bulk of its existing Rs 850-crore India Development Fund.

Though the board and shareholders have a approved an aggressive five-year plan for the institution, Lall said: "It is not until the third year that we will fall short of our tier-I target."

He declined to disclose the size of the IPO, but said the institution's balance sheet would grow from the present Rs 8,000 crore to Rs 25,000 crore over five years at an average annual growth of 30 per cent.

IDFC expects to leverage its capital base more from the existing four times to at most seven times, as "our borrowing will grow at a faster rate," said Lall.

IDFC has planned an external commercial borrowing offering of $ 150-200 million and is in talks with various multi-lateral agencies and domestic institutions capable of providing foreign exchange loans.

Meanwhile on the IPO front, which would be part primary and part secondary, there would be pro-rata sale of stake by existing shareholders, while new investors would also pick up equity.

However, "the government will continue to be the largest single shareholder", said Lall. The government wants to ensure that IDFC is perceived to have sovereign backing, which will help in its credit rating and offer a greater degree of comfort to investors, said Lall.

Further, IDFC would have a greater leeway in competing for funding infrastructure projects through the government relationship, as "we would get to know of potential financing opportunities ahead of the competition," he added.

Today, the government holds 35 per cent stake in IDFC directly and an additional 5 per cent through IDBI. The institution had earlier planned to raise Rs 1,000 crore through an IPO.

According to the original shareholder agreement, IDFC's IPO was to be completed a couple of years back. Following a two-year grace period, the period was extended till 2005.

All existing shareholders have agreed to remain invested in the financial institution after the IPO. Foreign investors including American International Group, IFC Washington, Asian Development Bank (ADB), Government of Singapore, CDC, Deutsche Asia Pacific, among a host of others hold 40 per cent stake in IDFC. Domestic institutions hold the balance 25 per cent.

IDFC proposes to tap the domestic capital market but will encourage participation by foreign institutional investors (FIIs), said Lall. IDFC's five-year plan proposes to focus on transport, energy, telecom and industrial/commercial infrastructure.

IDFC also proposes to churn its assets more effectively as it looks at various structured product offerings.

It also plans to undertake takeout financing activities as well setting up funds to invest in equity of companies focusing on infrastructure.