India Infrastructure Finance Company (IIFCL), a special purpose vehicle wholly-owned by the government, wants sale of up to 20% of its total equity to the public. The idea is to help galvanise investors? interest in the company, hoping to emerge as a premier infrastructure financing institution.

A stock exchange listing is one of the options being debated as the government attempts to restructure this four-year old institution to make it a more proactive player. The finance ministry and Planning Commission are examining ways to restructure IIFCL into (what finance minister Pranab Mukherjee has called) ?a force multiplier for the infrastructure sector.?

?The government policy says profitable and viable public sector undertakings should give investors an opportunity to participate in their growth. With that objective in mind, it could think of diluting a portion of the shares of IIFCL,? said SK Goel, chairman & managing director, IIFCL.

?If any dilution is to happen at IIFCL, there is nothing wrong with that. We would like to experiment with a 10% or 20% dilution but not a bigger amount,? Goel said, when asked if a stock exchange listing was possible.

Mukherjee has estimated a 30% gap in infrastructure funding requirements, set at Rs 41 lakh crore in the twelfth five year plan (2012-2017).

IIFCL is expected to become a key institution that will provide long-term funds to infrastructure projects. The takeout financing scheme and the proposed credit enhancement product of IIFCL are aimed at providing long-term finance to infrastructure companies, Goel said.

IIFCL had cumulative sanctions of Rs 24,376 crore at the end of 2009-10 while disbursals touched Rs 11,837 crore. As per Union budget 2010-11, it has been asked to more than double its disbursements this fiscal. The initial role of IIFCL as a last-mile lender for long-term loans has undergone tremendous change in the last four years.

In a takeout financing arrangement, IIFCL takes out loans from the original lenders after a few years to lengthen the tenure of loans for the borrowers and to free up capital of lenders. Under the credit enhancement scheme, IIFCL will extend guarantees to bonds issued by infrastructure companies to improve their ratings.

IIFCL has sought government approval to make two changes to this scheme in order to make it attractive to investors, Goel said. IIFCL has proposed to take out the entire loan of the original lender, instead of 75% currently permitted. IIFCL has also sought to take out entire infrastructure loans of banks one year after the commercial operation date of a project, instead of three years now.

?There have been certain bottlenecks that we are now trying to remove. The scheme in its original form has kept certain checks and balances which are not acceptable to the users. For example, we will only take out 75% of the loan, whereas the other party feels that if you are taking out, then take out the full amount,? he said.

?IIFCL was expected to intervene only to the extent to which banks were not able to achieve financial closure for a project. But things have changed very fast over the past four years. Banks? capacity to finance infrastructure has been shrinking due to the asset-liability mismatch. So, this is the time the government and the Planning Commission feel that IIFCL should play a bigger role,? Goel said.

The IIFCL mandate to lend only to projects in the public private partnership (PPP) mode is also under review. Finance secretary Ashok Chawla and Planning Commission secretary Sudha Pillai are on the board of IIFCL.