In calendar year 2014, India Inc. should get into repair mode and de-leverage, only then will it be able to grow as and when the economy picks up, said Suneet K. Maheshwari, Managing Director and Chief Executive of L&T Infrastructure Finance.
Companies often take on excessive debt to trigger growth. If this (leverage) does not further growth as planned, the risk of default increases and firms have to de-leverage by paying off the debt or increasing the tenor of the debt.
Maheshwari spoke to
With the economy slowing down, what is the state of infrastructure today?
Much of the blame for the loss of growth momentum has been attributed to Government inaction. However, there is also another element. Financiers, both private equity and debt players, and project sponsors too have to share a part of the blame.
People planned on the premise of rapid growth. Plans were made on the basis of good cash flows at 7.5 per cent GDP growth rate. When 7.5 per cent fell to 5.5 per cent, the cash flow tripped and came down. Consequently, the high leverage could not be supported and had to be unwound.
Industrial houses are now unwinding their excessively leveraged positions, and this will take a year.
So, for us to move forward, we have to get growth on track and also help India Inc. de-leverage itself.
What’s the status of your infra debt fund?
It is in the formative stage. This is based on the NBFC model. So, the threshold equity requirement from our side is Rs 300 crore. On the back of Rs 300-crore equity, I can create a balance sheet of Rs 2,500-3,000 crore.
So, there is enough space in the current environment?
IDFs are only for operating projects. There is a good pipeline for IDFs in roads, transportation and public-private partnership projects. We expect to go online in the latter half of the fourth quarter of this fiscal.
Even in operating projects, there are issues...
Some of the operating projects may have gone for securitisation of revenues. Let us say the bids for a project were made when the growth rate was six per cent, and when the project was set up the growth was at 7.5 per cent and, therefore, securitised at higher revenues.
The revenues now have fallen. So, we have to refinance, elongate the tenors for which the Government has to extend the concession period. This is all in the pipeline, which I feel will happen.
If it does not happen will you fund such projects?
If the excess leverage cannot be corrected, then there is a problem and we cannot fund. But excess leverage has been done in projects which came into operation about two years back. Projects going live now are not excessively leveraged.
Road project revenues too have dropped, haven’t they?
Almost all road projects are seeing a dip in revenues and if they are not overleveraged, they are still worried as they were thinking of valuations.
Many of the road and power projects are up for sale…
It is good. If some get sold the sale proceeds will reduce the excess leverage. We should facilitate ownership change as long as good owners come in as it will help de-leverage India Inc.
Since banks have a shorter horizon, is it creating pressure on projects in a slowing economy?
No good infra project has suffered in India for want of finance. However, inherently, bankers are comfortable taking a shorter risk period. International investors or pension funds are less risk-taking, especially completion risk. I think, in India, there is a huge market for banks to take completion risk that get taken out by IDFs or such structures in which provident fund, pension funds and overseas large investors such as sovereign wealth funds can invest, as these investors look for steady cash flows.
IDFs have been launched with a view to tap and create a market for what I call takeout financial institutions.
Which are the segments you are into?
Power (36 per cent), transportation and construction (15 per cent), and telcom infrastructure (12 per cent) are the major areas.
What’s your exposure to the L&T group?
In infra, there is no exposure to the L&T group. We have been set up to finance the market. For our L&T projects we serve as a syndication desk. We organise the money from the banking system.
Despite depressed market conditions, how is that you are able to show growth?
Whenever we see an opportunity we grab it. The second-half is more challenging. I think we will achieve some growth. We have used infra project finance to get into non-infra project finance.
L&T Infra is purely into project finance of infra projects with completion risk. We are looking to add non-infra project finance such as cement and steel where we have some expertise. Then, the IDF is also happening. So, that book will grow. So, my L&T infra book will grow on a normalised basis, while additional growth will come from non-infra and IDF.
Last year your balance sheet size was Rs 15,248 crore. What will be the growth this year?
In the first half of this fiscal the asset growth was 31 per cent. Like last year, we expect to grow at over 30 per cent with infra contributing 15 per cent and non-infra and IDF the balance.
You have projects worth Rs 487 crore that have gone for corporate debt restructuring. How do you see this going?
The stress is continuing. We do expect the restructured CDR portfolio to increase. It hurts us, but it is good. The reason is, if these companies are not given the lifeline they will become NPAs (non-performing assets). If we feel there is a business case, we should give them time to restructure and come out.
There were about five or six projects last year and the number will increase this year.
shanker.s@thehindu.co.in