State-owned Power Finance Corporation (PFC) plans to enter capital market with an FPO towards the end of the current financial year to raise fresh equity to bolster its capital adequacy ratio.
The infrastructure finance company (IFC) status has raised capital adequacy requirement for the company from 10% to 15%. However, the company is yet to figure out how much fresh equity it needs. The company?s capital adequacy ratio is currently estimated at 17.38%. While there is no immediate threat of the company breaching the capital adequacy requirement norm, it might feel constrained in increasing its lending.
The share of private capacity addition in the power sector is expected to go up to 63% in the coming Five-year plan from 23% level in the current plan. But private power developers are feeling fund crunch because of drying up of external sources of long-term funding in the wake of the global financial crisis. Meanwhile, most of the Indian banks have also hit the sectoral and group exposure limits. PFC, a power sector non-banking finance company, can fill the funding gap. Following IFC status, the company should be able to increase its lending by Rs 20,000-50,000 crore. But to take advantage of that enhanced lending flexibility, the company needs to expand its equity base.
PFC has undertaken an internal exercise to work out its requirement of fresh equity. ?We are internally calculating our requirement of fresh equity,? said PFC chairman Satnam Singh.
Following that, the company will move a proposal for consideration by its board. After that, it will have to secure approval of the power and finance ministries. ?We would like to hit the capital market with follow-on public offer between February and March. However, that depends on availability of timely approval,? Singh told FE.
PFC?s stock is doing well despite weak sentiments prevailing in the market. The company management remains confident that there would be a good investor response to its FPO.