Power Finance Corporation (PFC) is expected to maintain the growth momentum in coming years on the back of its robust loan sanction portfolio. The company?s outstanding loan sanctions stood at R1,70,000 crore as on December 31, 2010.
Given that PFC disburses R25,000-30,000 crore loans a year, the company ?s outstanding sanctions would ensure normal credit off-take over the next 6-7 years. However, high losses of state electricity boards remain a risk to PFC?s business. Investment inflows into the power sector could dry up if the financial health of state electricity boards does not improve soon. The accumulated losses of SEBs are estimated to have reached R70,000 crore during the fiscal 2010-11. Against this backdrop that PFC is coming out with a follow-on public offer (FPO) on May 10.
The company expects to raise R6,000 crore through the FPO, which should commensurately increase its net worth. PFC, which has bagged the infrastructure finance company (IFC) status, exclusively caters for the funding requirements of the power sector. As per RBI?s exposure norms, PFC can lend up to 25% and 40% of its net worth to a single company and a group company, respectively.
PFC is likely to become the country?s fourth largest lender in terms of net worth post-FPO. Since power projects are highly capital intensive, PFC?s higher net worth should help it attract developers with large borrowing needs.
PFC?s credit ratings for international borrowings are equivalent to India?s sovereign ratings. That helps the non-banking finance company (NBFC) raise money from the overseas markets at competitive rates.
India is making all-out efforts to step up the pace of capacity addition in the power sector to overcome the growing gap in demand and supply of electricity.
The government has envisaged adding 100 giga watt capacity in the coming 12 th Plan over the target of 78,000 MW in the current plan. Because of the slow progress in capacity addition, the Eleventh Plan target has been revised to 62,000 MW.
The 100 GW capacity addition envisaged by the government during the 12 th Plan entails fund requirement of over R5 lakh crore. Because of its ability to access funds at a cheaper rate, PFC is a preferred lender for the power sector. The company is well positioned to benefit from the government?s power sector capacity addition programme for the 12th Plan.
Credit demand risk for PFC is minimal in a high-growth economy. Despite that PFC is not taking any chance. To hedge against any possible risk of slowdown in credit demand from the power sector, the company plans to acquire a banking licence.
The company is looking at acquiring an existing bank. At the same time, it is also examining the possibility of starting a new bank. It is in the process of selecting a consultant to guide it in this regard.