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IRFC uses borrowed funds to acquire rolling stock.

Mamuni Das

New Delhi, Nov. 18 Having already mobilised Rs 5,270 crore in the current fiscal, the Indian Railway Finance Corporation (IRFC) will be raising Rs 4,000 crore in the remaining part of 2009-10.

To raise these funds, it will use a combination of instruments such as tax-free bonds, 15-20 year taxable bonds, term loans and securitisation deals. But the exact break-up is not yet decided.

“We are waiting for clarity from the Finance Ministry on the exact amount of tax-free bonds that we can issue in the current fiscal. Then, we also have to look at the market appetite for tax-free bonds,” Mr R. Kashyap, Managing Director, IRFC, told Business Line. IRFC has an in-principle approval to raise Rs 5,000 crore through tax-free bonds.

The company is also trying to obtain additional equity infusion of Rs 291 crore from the Railway Ministry. The Ministry is considering the proposal. After the equity infusion, the paid-up equity of IRFC will be Rs 1,000 crore, which also is the current authorised capital of the company.

This step is being taken to ensure that the debt-equity ratio of IRFC is well within the 10:1 limit, as is the Government norm for NBFCs.

With a mandate to raise Rs 9,170 crore in 2009-10, the highest ever till date, IRFC is close to the debt-equity levels of 9:1. “We have also written to the Railway Ministry to increase the organisation’s authorised capital to Rs 2,000 crore,” Mr Kashyap said.

IRFC has already raised Rs 5,270 crore in the current fiscal from the domestic and external market. This has been done with an average cost of 7.5 per cent and average tenor of seven years.

From the domestic market, IRFC mobilised Rs 3,111 crore, with an average tenor of eight years and cost of 8.25 per cent. Most of the domestic market mobilisation was carried out in the April-July period.

In 2009-10, IRFC consciously frontloaded its borrowing programme anticipating increase in interest rates in the subsequent period.

“In April, we had raised Rs 1,811 crore. The cost was 7.4 per cent (five-year tenor), 8.19 per cent (ten years) and 8.2 per cent (15 years). In the last seven years, we had never raised funds in April as the market is usually difficult,” Mr Kashyap said.

“With this step, IRFC saved itself an additional liability of about Rs 40 crore over the repayment period,” he said.

IRFC also mobilised $450 million (Rs 2,159 crore) from the external market at LIBOR plus 230 bps. The actual cost was four per cent with five-year tenor, without hedging.

“Assuming hedging, the cost to IRFC will be 6.5 per cent,” he said.

In 2008-09, IRFC funded acquisition of 472 locomotives, 2,196 passenger coaches and 7,788 freight cars, valued at Rs 6,990.75 crore. IRFC – the finance mobilising arm of the Indian Railways — uses the borrowed funds to acquire rolling stocks, which it then leases out to the Indian Railways.

The Railways, in turn, pays a lease charge on the assets owned by IRFC.

More Stories on : Railways | Financial Institutions

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