Speaking on the sidelines of the IDFC conference, Lall said he hopes to rope in investors and investments worth USD 1 billion over the next 3-4 months.
Also read: Tatas to undertake huge infra investments in Punjab: Mistry
Speaking to CNBC-TV18, Lall says he expects the company's non-performing assets (NPAs) to continue in the 1-1.5 percent range, far lower than the market.
Below is the edited transcript of Lall's interview.
Q: The markets have factored in a lot of fears of bad loans. So have the provisions and profit and loss of lenders adequately factored all the bad news? Do you think there is a likelihood of more to come?
A: I don't know what's happening in other's balance sheets but what we see through our own, I think the fundamental situation is not getting worse. We know what the damage is likely to be, but to the market, the revelation of that will happen only as provisioning happens.
Hence, we've been guiding investors as to what our peak non-performing assets (NPAs) are likely to be. So, they still remain a small number, but we have been saying that this is a bit misleading because we know there are problems and these problems will surface as and when we provision which is a regulatory requirement.
Our NPAs peak between 1-1.5 percent which is much lower than the rest of the market. So, the fundamental situation is not getting worse but indicators to market is that it will get worse for a little longer.
Q: When you say 1-1.5 percent do you mean increase in the gross Non-performing loans (NPLs) or net NPLs?
A: We have full provisioning cover for whatever asset quality challenges that we are facing.
Q: Time-wise when will NPLs start to get smaller? Will it take another two-three quarters or even full year?
A: The provisioning for the kind of projects that we are talking about in infrastructure is not by definition as formulae as you would have in case of lending for consumer durables or credit cards.
It has a lot to do with how the project is tracking. Obviously our efforts are to do what we can to diffuse the problem, mitigate the problem and solve the problem. To the extent we are able to help a client gain access to equity capital that recapitalises his project or balance sheet. We have either solved the problem or at the very least we have mitigated the problem.
The success rate of these initiatives is difficult to predict. So, it is not like we are sitting idle. So it is difficult to predict exactly over what period the actual numbers will peak but it's possible to judge over what period in a macro-sense we are likely to get past this problem. And there my guess is that this could take 24-36 months.
Q: I understand you are going to meet equity investors into your PE fund at your conference in Washington. What kind of investors are you meeting and why?
A: The need of the hour in infrastructure space is to restructure and recap. One would want to do that in a way that you fix the problem, you don't want to do a band-aid solution that 6-12 month from now you are back to square one.
For that it requires availability of a class of capital wherein people are willing to take risk at this point in the cycle. It is not for the uninitiated. It requires deep knowledge and confidence and comfort of risk involved.
On the other side it requires a degree of pragmatism on those whose balance sheets are stretched. They should become more realistic about valuations that they are willing to accept to facilitate sale of assets.
What we are trying to do at this conference is to precisely highlight a very important initiative that precisely does this. We have been successful in bringing to the table a group of deep pocketed international investors who understand these kind of risks and are willing to invest long-term capital to purchase assets that might be for sale and therefore contribute to a wider solution for recapitalisation of this sector.
We had first closing of our second infrastructure equity fund for USD 650 million and the first closing means this is the first round of investors that have committed capital to this fund. We are pursuing other investors and we are cautiously optimistic that this USD 650 million in commitments will go up close to USD 1 billion over next three-four months. We will then have about USD 1 billion to help recapitalize and purchase assets from buyers who are now increasingly pressured to sell those assets and infuse valuable equity into their balance sheet.
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