'Utilities and water are emerging areas'

Non-banking finance company Srei Infrastructure Finance is enlarging its private equity fund for infrastructure projects. Hemant Kanoria, chairman and managing director of the project and equipment finance business, shares the reasons for the move at this time and his outlook for the infrastructure sector in an interview with FE's Ashutosh Kumar. Excerpts:

What is the idea behind enlarging your PE fund?

We have been in infrastructure equipment, project financing and advisory services for the last 20 years. On the project development, we are in areas like roads, power and special economic zones. On the private equity, we are managing close to about $150 million of both debt and equity investments in infrastructure. So, basically we are in every sector of infrastructure and are now trying to complete the entire value chain for clients. That is the reason we thought it is a good idea to go in for a larger fund.

What will be the size of the enlarged fund?

We are looking at anywhere between $500 million to $1billion of an infrastructure fund. The opportunity that we can offer to investors in the infrastructure space is much larger. For anyone making an equity investment, the entire approach has to be partnership-based. Almost all infrastructure companies, in some way or other are clients of Srei. Therefore, we feel that we are well positioned for the enlargement of the fund. We have a good team, which understands how to support clients and in turn get their support because it is a win-win situation. At present we are just putting in place the information memorandum and then we will go to the market and have a soft launch to see what kind of appetite international investors have.

What will be your focus areas in infrastructure?

We will be primarily looking at roads, power and ports because the government has lined up mega investment plans in these sectors. We are also trying to tap investment opportunities in water because we think that utilities and water are emerging areas.

What is your project finance target this year?

Our target for project financing this year is close to about Rs 3,000 crore. And on the equipment financing side, it is around Rs 6,000 crore.

Are disbursements picking up since some green shoots have started appearing? How do you see disbursements now?

It is gradually picking up. Last year it had substantially come down especially during the October- December quarter. Then it picked up in the January-March quarter. It further picked up in the first quarter this financial year. July to September will be a little slow because of the monsoons. So, we hope, it will pick up again from the October quarter. In the third and fourth quarters this fiscal, we expect disbursements to grow substantially.

Which are the sectors witnessing a pick up in disbursements?

We have seen disbursements picking up in road and power sectors. These are the two sectors where the government also has a lot of thrust and things are moving up. I would not say that things are moving up at the speed we expect them to move. It is picking up. The economy had also slowed down in the third and fourth quarters last year, so it would take time. But we are very hopeful that disbursements will now keep growing.

In the budget this year, the government allowed IIFCL to get into take-out financing. How do you see this? Have you approached the government with a similar kind of arrangement for NBFCs?

Take-out financing is a very well accepted product overseas. In India, it was introduced by IDFC a decade back. At that time, it did not have that kind of market it should have had. We have requested the government to allow infrastructure financing NBFCs to approach the refinancing window from the IIFCL in the same manner as banks have been allowed to get refinancing for a long term.

What are the immediate concerns of the NBFC sector that needs to be addressed by the government?

NBFC sector requires funding. So, the government needs to see from where they can raise money. A monitoring system also needs to be put in place so that people should not exploit the market when they are borrowing the money. There are problems with external commercial borrowings (ECBs) and the government can track fund flows through lots of ways.

Can you elaborate on the problems with ECBs?

Every time the government comes out and says we have opened up ECB, you still have some shackles. After a lot of huff and puff, the government allowed infrastructure financing companies to tap ECB route, but not through the automatic route. Then they allowed them to borrow only from bilateral, multilateral and government-owned institutions. And when you borrow from them, it has to be in 3:1 ratio. But a lender is not desperate to lend to us. Why will he make an investment? Now, the government has removed the 3:1 ratio, but still borrowings have to be done only from multinational institutions.