Energy,Microfinance take lead in IFC invesmtents in 2009

By Asma Azmi

Microfinance Focus, Dec. 31, 2009: The International Finance Corp, the World Bank’s private sector lender, aims to make about $1 billion a year in new investments in India over the coming few years, matching the level of recent years, said a report by Reuters last month quoting a top IFC executive.

IFC had shown its interest in India in October when it raised $1.6 billion, in association with Standard Chartered and State Bank of India, to lend to Cairn India, a unit of Cairn Energy, to fund a crude oil project in Rajasthan. “It’s a good pace,” Lars Thunell, executive vice president and chief executive of the IFC, said about the pace of IFC in India. He said an increase in the IFC’s capital level, which it is seeking, could result in increased investment in India soon. So, in 2010, IFC will become one of the top investment mobilizers to India.

Already, IFC has offered an array of financial products and services, it strengthened many development projects and infused billions of dollars in the economy. With 182 member countries, IFC holds a vision of giving people an opportunity to escape poverty and improve their lives. It provides development impact solutions through firm level intervention (direct investments, advisory services and the IFC Asset Management Company), standard setting and business enabling environment work. Since its inception it has become one of the largest multilateral sources of loan and equity financing for private sector projects in the developing world.

“IFC had invested over a billion in new commitments in India in financial years 2007 and 2008. The institution expects to make a similar commitment in the next fiscal,” IFC Director for Infrastructure (Asia and Africa) Anita George told media earlier this year and the organization seemed to have lived up to its commitments. IFC’s focus, she said, would be on projects in the infrastructure sector, including power, roads and ports and clean technology schemes.

Besides the regular operations, George said two IFC-supported funds will pick up an equity worth $1.7 billion (Rs 8,500 cr) in infrastructure projects, a move that will help the economy arrest the impact of global financial meltdown. Out of the total $1.7 billion, IFC mobilised $1 billion through Macquarie-SBI Infrastructure Fund and $700 million from IDFC-promoted India Infrastructure Fund. IFC has invested a total of $200 million in these two funds.

“IFC’s contribution to creating these two funds is part of its countercyclical investment strategy to boost economy”, shestated earlier, adding, these funds will help India sustain infrastructure investments in power, toll roads, ports, water, and waste management and help generate jobs and enhance incomes. Mobilising $1.7 billion, the IFC expects the fund to generate total investment of $5-8 billion over the next three to five years.

Addressing the concerns of environment sustainability, IFC has contributed $45 million in equity-cum-dept into India’s drip irrigation major, Jain Irrigation. The drip irrigation major will allot up to 2 million equity shares of Rs. 10 each to International Finance Corporation on a preferential basis at a price to be decided according to SEBI guidelines. IFC will also lend another $30 million to Jain Irrigation in two tranches for meeting the capital expenditure requirements. Besides this, IFC had lent $30 million in the last 24 months to the company.

Anil Jain, Managing Director of Jain Irrigation, said, “This equity infusion will strengthen the balance sheet of the company. IFC and company share common development goals in water conservation and rural development. This $45 million fund raising will also ensure CAPEX needs of next year.”

World Health International Inc. (WHI), which provides business solutions to the problem of lack of safe, clean and affordable water in developing countries, has bagged commitments from IFC to finance its $15 million India-centric project. The facility is in the form of long term loans to help more than 600 communities in India fund the purchase of Water Health Centres over the next 18 months, with the capacity to serve more than three million people.

Water Health International, Inc. provides business solutions to the problem of lack of safe, clean and affordable water. WHI combines its water purification and disinfection technology with business approaches to enable the delivery of affordable, clean water to the rural and underserved communities. WHI invests in health and hygiene education programs. The firm has

more than 600 installations of its water purification and disinfection systems in developing countries, with over 200 systems currently operational in India.

IFC is likely to pick up a minor stake in a 15-MW biomass power project developed by Auro Mira Energy Company, Tamil-Nadu based renewable energy producer. The investment will be at the project level and not at the entity level. IFC is already providing a $5.25-million loan to the $16-million project.

Auro Mira Bio Systems Kanyakumari Pvt. Ltd, a subsidiary of Auro Mira which will develop the 15-MW plant, will sell thepower to the grid, trading companies or to industrial users. Construction will begin in December while the plant will becommissioned by March 2011. Auro Mira, targets to develop, own and operate 1,000 MW in the clean energy space. Auro Mira has two biomass plants in Tamil Nadu, a 7.5-MW plant at Pudukottai and 10-MW plant near Madurai.

IFC, is also expected to invest $25m in the Private equity firm Olympus Capital’s fund to invest in renewable energy and environmental services companies in Asia. This will be the first clean environment fund by Olympus and will have a major focus on India and China. Olympus Capital, an Asia focused fund manager investing in mid-market deals, raised its third fund at $750 million in June last year. Since its inception in 1997, it has invested around $1.3 billion in about 30 Asian companies.

To support India’s Healthcare and Insurance industry IFC has also proposed an investment of Rs 1.5 billion in Max India. The funds will be used by Max Healthcare Institute Ltd, the group’s hospital chain arm, to expand existing facilities andconstruct two Greenfield hospitals in National Capital Region (NCR). IFC has previously invested in Max Healthcare. It made a $66.7 million equity and quasi-equity investment in the company in 2007. This time round, IFC is investing in the listed parent company, and seems to be going in for more liquidity. IFC may get 4-5% equity stake in the company.

IFC has invested Rs 24.89 cr in Snowman Frozen Foods Ltd, a subsidiary of Mumbai-based container-freight  station operator Gateway Distriparks Ltd (GDL). IFC also holds a 19.9% stake in the company. SFFL is a cold chain logistics business with a pan-India network. GDL acquired 50.1% stake in SFFL in 2006, making its foray in cold chain business. It is currently operational with 16 cold stores in cities including Mumbai, Delhi, Chennai, Bangalore, Kolkata, Pune, Goa, Kochi, Hyderabad and Ludhiana.

Undertaking its advisory role, IFC will be acting as the principal adviser to the proposed Vizhinjam International Seaport, near Thiruvananthapuram. IFC will extend expertise to structure, market and implement the project and to attract serious investors through an open and competitive bidding process. IFC will implement the project in public-private partnership.

Earlier this year IFC, private equity fund manager VenturEast and Bharatiya Yuva Shakti (BYST) Trust have launched a fund to provide financing to young Indian entrepreneurs. The fund, which will be managed by VenturEast is targeting a final close of $5 million. It has already garnered $2 million with an initial support of $700,000 from IFC. VenturEast is a fund with close to $300 million under management.

The fund will provide affordable financing and mentoring to young entrepreneurs at the grassroots level who have sound business models. This is also a first micro-equity initiative to finance socially disadvantaged entrepreneurs. IFC had joined hands with the Gujarat government to develop a university campus to address higher education needs of rural youth.

Apart from Climate Change and Regional Integration, IFC’s third pillar is Financial Inclusion and thus it has also committed investments in various Indian microfinance institutions. It has invested $1.15 million in Belstar Investment and Finance Limited, the microfinance arm of Chennai based NGO, Hand in Hand, to help establish a sustainable microfinance operation and reach a million women in the next five years. IFC’s equity funding will enable Belstar to obtain further support from international investors, domestic banks and financial institutions, said a statement. IFC Executive Vice President and CEO Lars Thunell, said: “Supporting microfinance institutions is an important step toward creating economic opportunities for the poor. Through our work with Belstar, we will bring financial services to underserved people in India, particularly women entrepreneurs in rural areas.”

IFC also proposed to invest $1.9m in microfinance venture fund Aavishkaar Goodwell in Varanasi-based Shre Pathrakali Finance Co Ltd. “IFC is considering an equity investment, along with other investors, to facilitate the company to start and expand its operations”, says a note on its website. The company’s registered office is in Chennai and its operations are headquartered in Varanasi, Uttar Pradesh and started operations in Varanasi in August, 2009 with four branches. It is also planning to pump in $7m in Rajasthan’s AU Financiers Pvt. Ltd., which is a non-banking financial company (NBFC), providing finance to rural and semi urban areas. These include services like vehicle loans and general insurance, besides microfinance.

Along with IBRD, IFC said it seeks to increase capital to strengthen its ability to create opportunity for the poor in India and other developing countries, especially to achieve financial inclusion. IFC’s overall global investments totaled $14.5 billion in fiscal 2009, helping channel capital into developing countries during the financial crisis.

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