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IDFC wants to pay interest on debt at market rates

Our Bureau

CHENNAI, July 16

INFRASTRUCTURE Development Finance Co Ltd (IDFC) has requested that it be allowed to pay interest on the subordinated debt at market rates rather than linking the interest to the dividend declared by it.

IDFC has made this request to both the Centre and Reserve Bank of India. IDFC has got Rs 650 crore of subordinated debt -- Rs 350 crore from RBI and the remaining from the Centre. The condition attached to the debt was that it would be interest-free till IDFC paid dividend, after which the interest charged would be the same as the percentage of dividend declared.

For 2000-01, IDFC declared a maiden dividend of seven per cent (70 paise per equity share) and hence had to pay an interest of Rs 45.5 crore on the subordinated debt.

Mr Nasser Munjee, Managing Director & CEO, IDFC, told a press conference here on Monday after the company's fourth annual general meeting that the RBI has agreed to IDFC's request to delink interest on the subordinated debt from the quantum of dividend p aid. The Centre's response is awaited.

IDFC's proposal is to link the interest on the subordinated debt (basically Tier II capital) to market rates on Government securities. It has also suggested that the subordinated debt (to be paid back now after 15 years) be made a ``deeply subordinated d ebt'' for a period of 50 years. The advantages for IDFC are that it will not have to worry about repaying the debt for a longer period and the debt will be a sort of a sovereign guarantee that will help the IDFC when it goes for credit rating.

For 2000-01, IDFC's total income was Rs 314.90 crore (Rs 288.06 crore), provision for tax Rs 16 crore (Rs 47 crore) and profit after tax Rs 140.44 crore (Rs 149.23 crore).

Mr Munjee said it was because of the Rs 45.5-crore interest paid on subordinated debt that IDFC's total expenses for the year went up to Rs 158.46 crore from Rs 91.83 crore the previous year.

He said IDFC's operations were looking up and disbursements were expected to improve in the coming months. The cumulative approvals up to March 31, 2001 were Rs 6,310 crore of which 58 per cent was to the energy sector, 25 per cent to the telecommunicati ons and information technology sector, and 15 per cent to integrated transportation. However, disbursements were only Rs 1,779 crore, 53 per cent of which was to the telecommunications sector, 35 per cent to the energy sector and 12 per cent to integrate d transportation.

During 2000-01, IDFC's approvals were Rs 2,467 crore with the energy sector accounting for 42 per cent, telecommunications 35 per cent and integrated transportation 22 per cent. Disbursements were Rs 762 crore of which 65 per cent was to the telecommunic ations sector, 29 per cent to energy and six per cent to integrated transportation. Mr Munjee said there was a huge gap between approvals and disbursements for all institutions as far as the infrastructure sector was concerned.

Mr Munjee said that during the first quarter of this year, approvals amounted to Rs 437 crore and disbursements Rs 201 crore.

Most of the action was in the telecommunications sector where consolidation was taking place. This would result in capital expenditure. The roads sector was expected to take off once the bids based on the annuity concept were awarded. There was still not much progress in the power sector.

Mr Munjee said IDFC had started operations in two new areas -- food and agriculture sector for post-harvest infrastructure and logistics, and decentralised infrastructure and new technology.

Pic.: Mr Nasser Munjee, Managing Director & CEO, IDFC, addressing a press conference in Chennai on Monday. Also seen is Dr Urjit R. Patel, Executive Vice-President - Policy Advisory.

Picture by Bijoy Ghosh