Financial Services Ltd (IFIN; ‘IND AAA’; Outlook Stable) has set up an
infrastructure debt fund (IDF) under the mutual fund route, which will be
governed by the mutual fund regulations of the Securities and Exchange Board of
India (SEBI). After receiving all the necessary approvals in October this year,
activities are underway to transfer the ownership of asset manager and trustee
company from IFIN to IL&FS Investment Managers (IIML), a subsidiary of
IL&FS Limited. The ownership and management control of the IDF would remain
within the IL&FS Group as the ultimate controlling shareholder in both
entities IFIN and IIML. The IDF (Series 1) has raised a corpus of INR7.5 billion
from domestic investors on a private placement basis. The amount is spread over
three schemes – INR2.32 billion for scheme A, INR2.35 billion for scheme B and
INR2.8 billion for scheme C with tenors of five, seven and 10 years,
respectively. The units were fully paid and subsequently listed on the National
Stock Exchange. The schemes offer both dividend and growth options to its
KEY RATING DRIVERS
The rating benefits considerably from being
part of the IL&FS Group. Infrastructure Leasing & Financial Services
Ltd (IL&FS, ‘IND AAA’) is among India’s premier financial and
infrastructure institutions with an established presence across the
infrastructure spectrum as developer, financier and operator. Additionally the
proposed new sponsor IIML has expertise
in managing investments across sectors including infrastructure and the IDF
team will benefit from the IIML team’s management expertise in both operating
as well as divestment of assets. IIML has been a first-mover in the Indian
infrastructure private equity (PE) space since late 1990s and managed several
pioneering infrastructure investments in sectors such as telecom, waste
management and city gas distribution. IIML also has extensive fund raising and
management experience with Indian as well international institutions, which can
be leveraged by IDF for further fund raising.
At end-October 2016, the fund invested
the entire corpus in the non-convertible debentures of eight projects/companies
which have presence across diverse sectors. Around 1.38% of the corpus is
invested in liquid instruments. Ind-Ra believes that the sponsor’s INR1.25 billion
investment in the corpus demonstrates its confidence in IDF’s prospects.
In the agency’s view, the investment manager IL&FS Infra Asset Management Company Ltd (IIAML or the asset management company) possesses impeccable credentials drawn from its sponsor pedigree that would reflect in its management of IDF. Understanding the skills in financial services is a critical ingredient for the commercialisation of infrastructure. IL&FS shaped its financial services division to cater to this critical need. IL&FS has a significant focus on investment banking, asset management and infrastructure financing. The investment manager has benefitted from the vast and specialised expertise of more than 25 years of the IL&FS Group in the infrastructure sector.
The fund’s investment management policies and risk management systems including control through internal auditing – all supported by a comprehensive compliance manual – are deemed robust and conducive to help it achieve its objectives. Board sub-committees have oversight over IIAML’s key functions.
Ind-Ra believes that the fund, pursuant
to its investment criteria, has created a balanced and diversified portfolio
within the overall ambit of the prescribed investment guidelines.
The fund’s strategy of co-investing with
few other investors should help it secure favourable transaction structures. It
will also play an active role, where necessary, to ensure investee entities
perform according to expectations. If one or more of the portfolio investments
are stressed, IDF will quickly step into exercise creditor rights to harness
IDF’s long-term economic value. This is characteristic of several
infrastructure projects despite the short-term volatility in performance or
Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings.
Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.