N. Ramakrishnan Chennai, Nov. 13 Infrastructure Development Finance Company Ltd, as a specialised funding agency for the infrastructure sector, has a pulse of the sector. There is a definite slowdown in the infrastructure sector and companies are increasingly finding it difficult to get finance and even the larger ones that manage to tie-up funds find that they are costlier. This results in project calculations going haywire, since infrastructure projects have long gestation periods.
Mr Vikram Limaye, Executive Director, IDFC, in this interview conducted over telephone and through e-mail, talks about the infrastructure sector in the light of the liquidity crunch. He believes this is the time for India to aggressively invest in infrastructure projects to capitalise on the economic revival. Excerpts: What has been the impact of the liquidity crunch on infrastructure projects? What do you think needs to be done? The global financial crisis has an impact on the Indian economy and the infrastructure sectors. Liquidity is constrained and the cost of capital has gone up. Risk aversion results in flight to quality and that will result in access to capital being restricted to the larger and higher quality companies although the cost of capital - both debt and equity - has gone up significantly even for these companies. The mid-cap and SMEs will face greater constraints and their growth plans will be impacted. The infrastructure landscape will see similar issues, which could result in restructuring of projects under implementation and delays in completion of projects because of the limited access to capital. The capital needs for infrastructure development in India are large and will require domestic and international capital, which will be difficult to obtain cost effectively today. Over the medium to longer term, the Indian growth story is very much intact and once there is stability and confidence among investors and lenders, financing for infrastructure will be more forthcoming. The liquidity crunch will result in a slowdown in infrastructure development - because of access to capital being limited and cost of capital having increased dramatically. Many infrastructure projects that were in the pipeline will find it difficult to achieve financial closure because of the limited availability of risk capital and debt financing. Domestic inflation, interest rates and shortage of liquidity further exacerbate the problem of availability of financing and the cost of capital. Over the medium term, the situation will stabilise and financing will be more easily available for Indian infrastructure. Infrastructure development is the key to sustaining healthy GDP growth in India. If we focus on expediting infrastructure development in India, we will not only maintain a healthy GDP growth rate, but emerge much stronger when global economic growth picks up. The pace of infrastructure development must pick up. What will be the average cost of borrowing for infrastructure projects now? The banking system has been lending to infrastructure projects for the last few months at PLR, which till recently was approximately 14 per cent. This will make projects unviable as the return, especially on road projects, will be severely hit. Has IDFC become more selective on the sectors or the projects it finances? We are cautious on certain sectors such as real estate, hotels, SEZs and IT Parks, given the expected slowdown in the economy and the supply dynamics facing these sectors. Occupancy levels and rates at hotels have taken a dip. The turmoil in the financial services space and overall slowdown will have an impact on the IT and ITES sectors. We believe power, roads and telecom are the largest opportunities. Once there is more clarity on the modernisation of the 35 regional airports, it could be a large financing opportunity. In telecom, we will be looking at incremental funding required for 3G-rollout and the opportunities in the rollout of telecom towers. What about your plans for raising funds? We are currently in the process of raising $1 billion for an infrastructure focused Project Equity Fund, for which commitments for $860 million are in place. We are confident of closing this in the next couple of months. This will be a unique product for the infrastructure landscape in India. We also recently closed our third infrastructure focused private equity fund at $700 million. Our capital raising plans are very much on track and we have been successful in raising funds in a challenging environment. http://www.thehindubusinessline.com/2008/11/14/stories/2008111450650300.htm When prosperity comes, do not use all of it. --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "Kences1" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [EMAIL PROTECTED] For more options, visit this group at http://groups.google.com/group/kences1?hl=en -~----------~----~----~----~------~----~------~--~---
