Growth Despite Challenges

SIFL’s performance and future outlook

Srei Infrastructure Finance Limited (SIFL) started its journey a quarter of a century ago to solve one of the most critical problems facing our country – financing infrastructure projects. Today, it is no longer just a finance company, and has established itself as one of India’s largest holistic infrastructure institutions.

Major achievements in 2015-16

SIFL has emerged as a significant player in the country’s infrastructure financing space over the past few years. The company has traversed a long distance from being a mere lender to becoming an equity investor across an array of infrastructure projects. It has pioneered sustainable approaches to become a leader in almost all segments in the infrastructure value chain. While 2015-16 has been a challenging year for the country’s infrastructure sector, SIFL through its innovative models has been able to grow its businesses, creating value for its stakeholders in the process.

In 2015-16, SIFL had announced the sale of its entire stake in Viom Networks to the American Tower Corporation. The transaction, now completed, is one of the largest foreign direct investments (FDIs) in the Indian telecom sector in the past few years. The company was able to exit the telecom tower business with good valuations. Going forward, the company plans to unlock more such value creation opportunities.

During the past year, the BNP Paribas Lease Group decided to acquire shares in SIFL against its stake in group company Srei Equipment Finance Limited (SEFL) to take advantage of opportunities across the infrastructure sector in India. SIFL now has a consolidated 100 per cent shareholding in SEFL. This will add substantial value to the former’s shareholders and will enable them to reap the benefits of the equipment finance business.

Performance of various business segments

SEFL consolidated its position in the infrastructure and construction equipment financing segments further with its new lines of business such as information technology (IT) equipment financing. During 2015-16, SEFL’s total disbursements grew by 19 per cent to Rs 91.58 billion led by a 68 per cent growth in IT equipment finance disbursement.

SIFL’s infrastructure project finance business disbursed Rs 53.74 billion during 2015-16 as compared to Rs 48.27 billion in the previous financial year. Disbursements were made to a diverse set of infrastructure sectors while continuing to focus on subsectors like renewable energy (wind, solar and small hydro), hospitality, road, special economic zones (SEZs) and industrial parks.

SIFL’s infrastructure project development business focused on public-private partnership (PPP) projects in sectors such as roads, ports, SEZs and water management. As one of India’s leading highway concessionaires, the project development business has executed 14 road projects worth Rs 127.53 billion across 5,400 lane km and is currently managing a well-diversified build-operate-transfer (BOT) asset portfolio of over 3,200 lane km of highways with a total capital cost of over Rs 95 billion. These projects are completed or are under implementation in consortium with various domestic and international partners under the PPP framework.

SIFL is looking to reorganise its strategic investment portfolio and focus on its core business of project and equipment finance. As on March 31, 2016, the company’s con-solidated assets under management stood at Rs 367.02 billion.

Investor sentiment towards infrastructure

“The deceleration in India’s economic growth in the past few years has certainly affected the infrastructure sector but we have finally started to see a distinct improvement in the economy and specifically in the infrastructure sector,” says Hemant Kanoria, chairman and managing director (CMD), SIFL. “Infrastructure, being a key area for development of any economy, will always be at centre stage in the country’s growth. India is seeing that many players who have not been able to comprehend the complexities of sector and the risks within it are still grappling with unresolved issues. SIFL has focused on the infrastructure sector for more than two decades and fortunately has been able to steer clear of any major problem.”

The company continues to remain optimistic, as the government has been working on de-stressing the infrastructure sector. The policy stalemate that had gripped the country a few years ago is certainly over now. “The present government has brought a sense of purpose and urgency to its functioning. A series of reforms and practical guidelines spanning multiple sectors has once again got the global investor community interested in India’s growth story. It is no coincidence that inbound FDI reached a record high during 2015-16,” says Kanoria.

On the infrastructure front, the government has announced a number of sector-specific schemes, stepped up public investment, restarted many stalled projects and ushered in a sense of competitive federalism. The government has even roped in foreign governments to jointly implement key flagship infrastructure projects. In addition, the government has conceptualised new investment vehicles which can channelise funds from India and abroad into infrastructure projects. These are poised to open up huge opportunities in the country’s infrastructure sector which augurs well for SIFL.

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Challenges for infrastructure companies during 2015-16

To resolve long-pending disputes in the infrastructure space, there is an immediate need to set up an infrastructure dispute redressal tribunal. The tribunal could make a big difference in mobilising over Rs 5 trillion locked up in disputes relating to infrastructure.

In the past year, the sector has also faced headwinds in the form of weak domestic private investment demand, stalled projects, delays in land acquisition, inadequate risk mitigation processes in PPP projects, rise in delinquency rates and high interest rates. SIFL, however, has not only weathered the storm but has been able to grow its businesses.

Outlook on the PPP model in infrastructure

PPP in infrastructure is critical to drive India’s economic growth. Many systemic problems are now being taken care of with imaginative and practical solutions, which will pave the way for robust growth. The proposal to formulate new guidelines for renegotiation of PPP concession agreements is a key step in the right direction by the government. Corrective action is being taken on several fronts sector-wise and this is paving the way for a more mature and robust PPP model. Kanoria adds, “We believe that PPPs will emerge stronger in the infrastructure creation process and SIFL will be ready to tap the opportunities that will emerge.”

Conclusion

The recent upgrade of SIFL’s non-convertible debentures to AA+ indicates that the instruments are considered to have a high degree of safety in terms of timely servicing of financial obligations. It also implies that the instruments carry very low credit risk, thereby enabling SIFL to raise resources from the market and financial institutions at lower interest rates and enhancing its bottomline.

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“The present government has brought a sense of purpose and urgency to its functioning. A series of reforms and practical guidelines spanning multiple sectors has once again got the global investor community interested in India’s growth story.” Hemant Kanoria, CMD, SIFL

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