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Our Bureau

Mumbai , May 2

THE Government has indicated that it may progressively dilute its stake in Infrastructure Development Finance Co Ltd (IDFC) and finally exit, if required, after three years. The move is aimed at giving a free hand to the company to raise capital.

This marks a major change in stance, as the Government, the single largest shareholder in the company with 35 per cent equity, had until recently been looking for a tighter grip on the company. After the company's IPO, scheduled for June-end, the Government will dilute its equity, but still remain the single largest shareholder.

In the next two weeks, IDFC is expected to have a revised shareholders agreement, in which the Finance Ministry will spell out that it will have no obligation to hold any fixed percentage of stake in the company after three years. This means the Government could exit completely from the company, if required, after three years.

According to Mr Rajiv Lall, Managing Director and CEO of IDFC, the Government's intention is clearly not to come in the way of the company's growth. "It is good for IDFC that the Government has fixed a three-year period to have an obligation to be a part of the company, as IDFC can benefit from the sovereign backing during this period," he said.

On IDFC's IPO, Mr Lall did not wish to spell out the size, but said it would be "substantial." The road show for the IPO, which would be part-primary and part-secondary, will be kicked off shortly.

"Post-IPO, the company's board will be significantly streamlined and simplified, with the number of members likely to come down from 15 to 12. The minority shareholders will have more voice than now," said Mr Lall.

As part of IDFC's new business strategy, the company intends to provide a broad range of options for debt exposure and different equity exposures to overseas investors who are looking to play in the Indian infrastructure market.

One of the options is to introduce the concept of mezzanine fund in India for overseas investors, which will be in the form of a sub-debt with higher than normal debt-like returns. "This will be similar to a convertible instrument. It is a new concept in India and we are trying to get the necessary approvals," he said.

Another option that IDFC will offer to overseas investors is its proposed asset management scheme, which will seek to raise funds to invest in listed infrastructure companies. "The plan is to raise a small fund of about $200 million within the next 12 months for this. Overseas investors are keen to play in the infrastructure market in India, but there are no adequate vehicles. We intend to give them different vehicles to enter this market. After all, we have deep domain knowledge of the domestic infrastructure scenario," Mr Lall said.

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