When Bharat Heavy Electricals Ltd (BHEL) recently initiated the process of appointing a consultant to decide on its plans to enter the financial services sector, eyebrows were raised on the seemingly unrelated diversification by the state-owned equipment company.

The trend, however, is fast catching up among infrastructure sector firms, especially capital equipment players. Even as the Rs 43,500-crore BHEL is in advanced stages of floating an infrastructure finance company, global majors Siemens and General Electric Co too are eyeing the space.

While Larsen & Toubro was among the frontrunners — having set up L&T Infrastructure Finance Company four years ago as a wholly-owned subsidiary — the recent rush among infrastructure players to enter the financing business comes in the wake of Chinese firms bundling equipment supplies with funding options. This was done for the $8.3-billion Reliance Power equipment order and a similar deal said to be in the works for Lanco Infratech's proposed power equipment buy from China.

An eye on business prospects

The trend of infrastructure firms entering the financing space in India, according to analysts, is aimed at leveraging business prospects in an increasingly competitive infrastructure market, especially in the wake of projected investment requirements during the coming five years (Twelfth Plan period spanning 2012-17) pegged at Rs 40,99,000 crore.

The official reason being attributed for BHEL's infrastructure financing plans is to ensure “better deployment” of its cash surplus, which stands at well over Rs 8,000 crore, with net current assets pegged at Rs 14,100 crore during the quarter ended December 31, 2010.

But analysts point out that this comes at a time when large private power project developers are veering towards Chinese vendors for major equipment orders in the wake of the Chinese financing option. BHEL's board is likely to take a call on the proposal based on a report submitted by Crisil, its consultant. The move could help the firm leverage its equipment sales with customers, analysts say.

German firm Siemens has already set up a financial services arm, Siemens Financial Services Private Ltd, which will provide financing offerings to Siemens customers in India, particularly in the industry and energy sectors. General Electric, which already has a finance business in India, plans to leverage its infrastructure agenda using the financing platform and is in talks with domestic firms for possible tie-ups.

Others eyeing the business opportunity include power trader PTC India, which has already floated a subsidiary — PTC India Financial Services Ltd — as a special purpose investment vehicle to provide total financing solutions to the energy value chain, in which Goldman Sachs Strategic Investments and Macquarie Group jointly hold over 22 per cent stake. L&T Infrastructure Finance Company was incorporated in 2007 as a wholly-owned subsidiary of L&T and provides comprehensive financial solutions to infrastructure development projects across various sectors.

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