Idfc India: Infrastructure Investment Intermediaries

Situation:

IDFC Project Finance is a pioneer in lending for infrastructure projects. It was founded with the sole objective of providing and promoting private financing of Indian infrastructure. Its business is capital intensive and focuses on managing the loan book for IDFC, making the bridge between the parent company and its clients to build a larger and wider customer engagement. The firm had enjoyed recent success developing a set of niche capabilities. Now, they felt that they had to grow to remain relevant. The goal was to increase IDFC's balance sheet threefold while doubling the bottom line over the span of the next five years.

In 2010 the Indian economy was growing at an annual rate of 7.4%. Many observers felt that this expansion would soon be constrained by a lack of capital needed to fund public infrastructure projects critical to facilitating growth. Lack of infrastructure would both limit business and slow the improvement in quality of life for hundreds of millions of people. IDFC was chartered to catalyze private sector investor interest in the infrastructure sector. For its first five years, IDFC helped to define process enhancements like transparent tender processes and clear terms and conditions for concession agreements. In recent years the company had expanded its activities to include senior debt, mezzanine products, proprietary equity, private equity, treasury, listed products, project equity, project development, construction and PPP (public-private partnership) initiatives. While this presented opportunities in the infrastructure sector, the larger question was where would India, and therefore also IDFC, get the funds for the massive build-out.

IDFC found it needed to wear several hats in maintaining its policy advisor status to the Indian government for continued access and goodwill and serving the mandate to infrastructure for its unique positioning. But the nature of the infrastructure industry and its returns forced IDFC to spread across businesses where competition was already existent. IDFC's mandate was to catalyze private sector interest in infrastructure. As the pace of this interest was slow, an unexpected perception was that IDFC was a "think tank." IDFC built its reputation as a policy advisor to the government on landmark issues including telecommunications, civil aviation, and a 2003 electricity regulation act. IDFC offered a suite of products and services to its customers at various stages of the infrastructure sector life cycle through a combination of balance sheet- intensive and non-intensive businesses: Corporate and Investment Bank, Public Markets Asset Management, Alternative Asset Management, IDFC Foundation. The thinking behind expanding the product portfolio was to play a defining role in the Indian infrastructure story.

Questions:

1. Which Sectors IDFC have to focus in order to execute its strategy?

2. How could IDFC drive down the cost of funds?

3. How could IDFC help in channeling the foreign money in Indian Infrastructure projects?

4. How could they maintain standards as the company increased in both scale and complexity?

Hypothesis: