The institution has raised a total of 2,200 crore together with the Rs 800 crore raised through private placement of bonds in the past six weeks. It has already disbursed the Rs 800 crore raised in July to different industrial projects.
IFCI chairman K D Agarwal said the institution will start issuing bond certificates in the next few days. We will not keep the investors waiting. We want to build up a strong relationship with retail investors whom we will approach every year with new bond issues, he said.
Unlike other institutions which park funds in bank deposits for the duration between fund collection and disbursal, IFCI will offload the funds to industrial projects almost immediately.
Parking funds with banks even for a short period increases the total cost of funds. This is because banks can offer 8-10 per cent against the 16 per cent interest that institutions pay to bond investors.
We have a variety of industrial projects lined up for disbursal. We had planned the bonds issue strictly to meet our immediately needs in terms of sanctioned projects, R G Sharma, IFCI general manager, resources, said.
IFCI plans to restrict itself to one public issue of bonds a year. It takes months of efforts to make a public issue successful. Besides, it is not possible to approach the public too often, Sharma said.
IFCI will, however, continue to raise funds through the private placement route. Since this route involves less marketing costs, the savings on this score can be passed on to investors as a sop.
It is much easier to service a select group of bulk investors rather than thousands of retail investors.
IFCI had approached the public with an issue of Rs 800 crore and a green shoe option of Rs 800 crore. The institution's ability to raise Rs 1,400 crore is regarded as a major success on three counts:
it is the single largest public issue of bonds
this is the first time that an institution opted to close the issue at the earliest closing date
the SCICI issue which opened at an earlier date managed to garner a mere Rs 500 crore. The issue was for Rs 500 crore and a green shoe option of another Rs 500 crore.One reason for the success of the IFCI issue was Agarwal's ability to draw on his earlier experience as the chief of the merchant banking division of State Bank of India.
I got a feel of the market while handling some 150 public issues during my tenure with SBI, he said.
But we will have no difficultly in servicing investors of the public issue because a majority of them have opted for deep discount bonds having much longer maturity. Very few have opted for regular income bonds which demand regular servicing, an IFCI source said.
The bulk of investors have come from north India, where the bonds have been sold in remote areas. Our agents have put in a lot of hard work to sell the bonds in distant places. The average application was for Rs 20,000 in two or three kinds of bonds, Agarwal said.
Besides Delhi, other cities where the public issue generated substantial response from investors are Mumbai, Ahmedabad, Madras and Calcutta.
