Don't see infra spending picking up until mid-2015: IDFC

The good upmove seen in power stocks in the past few days doesn’t hint at an investment cycle troughing out, says Vikram Limaye, managing director and chief executive officer, IDFC.

Speaking to CNBC-TV18, Limaye says though the government has taken some steps in the right direction, but it will take atleast 18 months before investments pick up in new projects. Also read: India missed the bus; need firm leadership: Vikram Limaye

On which political party will be better for the sector, Limaye says, “This has nothing to do with politics, because all political parties are for infrastructure development in the country. Fortunately infrastructure has not been caught up in politics. So, I do not think it is an issue about which party comes to power,” he adds. Also read: Infra, banking need Rs 10.4 trillion bond funding: CRISIL Below is the edited transcript of Limaye’s interview to CNBC-TV18. Q: Are you noticing any changes at all? Your own stock price has moved up in the hope that the investment cycle has troughed out at least. We have also seen some of the infrastructure stocks improve a bit, especially the Tata Power varieties, the power stocks. Are you seeing any improvement that projects you think would have gone down under are now looking like a taking off?
A: Not really. It is still early days. It certainly feels like we are close to the bottom of the investment cycle in terms of issues that we have been talking about. In the last six months some of the announcements made by government have certainly been in the right direction. However, for investments to pick up in new projects, it will take atleast 18 months if not longer. Most people are going to be on wait-and-watch mode till the election results in the middle of next year and after that it always picks up with a lag.
Hence, I do not think investments in infra are going to come back in a hurry, but I think we are on the right path. Some of the announcements that government has made should get operationalised over the next few months and that will help existing projects realise incremental cash flows which will help balance sheets of developers as well as sentiment. Q: You spoke about the elections etc. the hope in the market is that if the Bharatiya Janata Party (BJP) comes to power then the funding constrains that states have seen will get eased and there will be a lot more government spending into this particular sector. What is your expectation on that front?
A: This really has nothing to do with politics, because all political parties are for infrastructure development in the country. So, it is not about whether it is Congress, BJP or left or right.
Fortunately infrastructure has not been caught up in politics. So, I do not think it is an issue about which party comes to power. I think what we have got ourselves into is a situation that is certainly feasible for us to come out of. It requires some strong leadership, some pragmatic solutions that have already been discussed and debated and someone to really take some ownership and move things along in terms of decision making.
Today, there are a lot of projects that have also been stuck in the last mile or several disputes, claims etc. that are pending in various regulatory authorities or various parts of government. From a tactical perspective, if one were to ask me, I do not think one can expect any kind of major policy reform from government in the last six months before elections.
What you can expect is some tactical fixes to issues that we have been talking about for a while, so that you get some of these things resolved and that is purely administrative action and that should be feasible. So, that is something that we should try and target over the next six months. Q: Can you give a ballpark idea of the number of projects where things were really bid extremely unrealistically, probably at the crest of the cycle and things like gas or a percentage of MSMEs and infrastructure where things might definitely get broken. Do you have a number for that?
A: I do not have a number for that. Say you have a power asset that is able to produce power over 40 years, is there a construct for your loan that can be repaid over 25 years, I would say the answer is yes. If you want to force-fit a project into a 10 year repayment cycle, you will land into trouble depending on how the project was bid.
The point I am making is that the cash flow generating capacity of these assets stretches over a long period of time. The way these assets typically get financed, especially when you achieve financial closure is 10-12 year debt. The asset exists long after that and is able to produce power or traffic is able to go on those roads for a long period of time after that. So, it is a function of the capital structure of that project and if that capital structure is appropriately adjusted can that asset actually be productive.