L&T Infra Debt Fund to raise up to Rs 2,750 crore via bonds

With more leeway to fund projects and tax exemptions, L&T Infra Debt Fund (IDF), L&T Finance group's infrastructure refinancing arm, plans to raise up to Rs 2,750 crore through debentures.

The money raised via non-convertible debentures (NCDs) will be used to fund infra projects, including those in renewable energy sector (wind and solar). L&T Financial services group will also inject more equity in the subsidiary to support expanding asset base. L&T IDF's net worth was Rs 615 crore (including additional equity infusion in December 2015) and debt of Rs 775 crore. It has disbursed Rs 998 crore to eight projects till end of December 2015.

CRISIL has assigned "AAA/Stable" rating to the proposed non-convertible debentures of L&T IDF. The IDFs are essentially non-banking finance companies. Initially, Reserve Bank of India had permitted IDFs to refinance projects with a guarantee from government-owned project authority through a tripartite agreement. These projects - roads, ports and airports - work on public-private partnership (PPP) basis.

Later, RBI eased norms for IDFs to make more projects eligible for refinancing. IDFs can now refinance non-tripartite agreement-backed projects with lower concentration ceilings.

The government has confirmed that IDFs floated as finance companies would enjoy income tax exemption to give infra refinancing a push. While easing norms, RBI has retained condition to refinance only operational projects with at least one year of satisfactory operations.

According to CRISIL, at least 40 per cent of L&T IDF's medium term portfolio will continue to be in tripartite-backed projects. The balance portfolio will be in projects without a tripartite agreement. The potentially higher asset-side risk with these projects is offset by many factors.

The non-tripartite project portfolio will consist of either highly-rated assets or projects in sectors with good recovery track record. The emphasis will be on greater diversification in the portfolio and reduction in steady-state leverage.

CRISIL said L&T IDF is expected, on a steady-state basis, to maintain the leverage ratio well below nine times at all points of time. These leverage levels provide healthy capital coverage to the company against potential asset-side risks. L&T IDF would have limited asset-liability mismatches and it is expected to raise only long-term funds with a minimum five-year maturity.