IDFC: We welcome NIB in financing Indian infrastructure

India’s Infrastructure Development Finance Company (IDFC) has recently received NIB’s loan facility for lending to infrastructure projects in this country. IDFC, established in 1997, combines the role of a infrastructure advisor to the government with that of a financial institution.

The NIB Newsletter met with Mr S. J. Balesh, Senior Director Resources at IDFC, to find out more about his institution’s special status and the most urgent needs for modern infrastructure in India.

What projects will NIB’s loan programme finance?

“This programme will be used for projects in the infrastructure sectors involving business interest from NIB’s member countries. We very much welcome NIB in financing the needs of Indian infrastructure development, particularly in telecommunications, clean energy and environmental technologies, ports and logistics, in which Nordic companies have traditionally been active. These types of investments need reliable long-term sources of funding, which loan facilities from NIB, a major player in the Nordic region, can provide.”

What is the scale of the needs facing the Indian infrastructure development?

“IDFC was established by the Government of India to lead private capital into the infrastructure sectors. Given the priorities of the country, we are seeking private investments in infrastructure. Under the current five-year plan until the end of 2012, the government estimates the need for investments in infrastructure sectors at around USD 450 billion. For the next five-year period, starting in 2013, the amount of investments sought is expected to double to one trillion US dollars. Projects in the infrastructure sector are of a long-term nature and require long-term funds.”

What are the main funding sources for IDFC?

“IDFC has four primary sources, of which three are in the domestic market and one is the international market. The corporation is triple-A rated domestically. Therefore we are one of the major issuers of debt securities in India. We do a lot of borrowing from the banking system in India. We also issue long-term bonds in the public market. Finally, we tap the international investment market. IDFC has been active in raising long-term loans, including the one from NIB. Traditionally IDFC has strong relations with the International Financial Corporation (the World Bank Group) and the Asian Development Bank, both of which used to be IDFC’s shareholders. Besides these two international financial institutions, we also have loans from KfW, the German Investment Corporation DEG, obviously NIB, and we are talking to a few other institutions.”

What sectors does IDFC see as a priority for itself in the coming years?

“The sectors IDFC is active could be classified into four broad areas. One of them is energy. It includes power production, transmission and distribution, renewable resources, oil and gas, pipelines, etc., which constitutes 46% of our exposure. The second biggest sector is integrated transportation, which includes roads, ports, airports, airlines and container terminals, accounting for 29%. The next one is telecom followed by the commercial and industrial infrastructure that also includes special economic zones. The two largest sectors, the energy and integrated transportation, will continue to lead the economic development and be the main priority for IDFC.”

A year ago, IDFC was the first in India to obtain the special status of an infrastructure financial company. What are the advantages of this special status?

“The idea of a special government financial agency to deal with the infrastructure deficit in India dates back to the 1990s. IDFC became a typical example of a public-private partnership—a privately owned company with strong government support. That has defined our unique role as a private lender to infrastructure projects and also as a policy advisor to the government on initiatives necessary to facilitate the flow of money. Given that the government pays very close attention to the needs of the infrastructure sectors, the country’s central bank has classified certain institutions with substantial exposure in infrastructure sectors as infrastructure finance companies. And IDFC was the first one that received this status, which gives us diversified access to funding in both the domestic and international markets. It has helped us to increase the flow of funds from both private investors in India and loans from banks. Once the regulatory framework was clear, we had access to the international lending market, and NIB became one of IDFC’s first counterparties for negotiations.”

You personally have been a driving force behind the loan agreement with NIB earlier this year. Have you had prior experience with our Bank?

“I’ve been with IDFC for more than ten years. My responsibility is to take care of all funding requirements of the company from both the domestic and international markets. It includes the relationship with NIB. Personally, I’ve been involved in building relations with NIB for the past 15 years, including the time before I joined IDFC. The loan agreement we signed in March was the first one between IDFC and NIB, but for me it was the third with your bank.”