The Hindu Business Line : IRFC to raise Rs 500 cr for Rail Vikas Nigam

INDIAN Railway Finance Corporation (IRFC) plans to raise about Rs 500 crore for Rail Vikas Nigam Ltd (RVNL) in the 2005-06 fiscal. This is over the Rs 3,400 crore that IRFC is expected to mop up for buying assets for Indian Railways this fiscal.

"We shall access the domestic market starting May," the IRFC Managing Director, Mr S. Balachandran, told Business Line. IRFC is the financing arm of Indian Railways whereas RVNL is a special purpose vehicle floated to undertake bankable port connectivity and gauge the conversion projects of Indian Railways.

"IRFC will take up financing some bankable railway infrastructure projects implemented by RVNL on priority basis," said Mr Balachandran.

In fiscal 2004-05, IRFC borrowed Rs 2,888 crore, of which offshore borrowings were Rs 1,096 crore and domestic borrowings Rs 1,792 crore.

The total borrowings were at a weighted average cost of 6.12 per cent after providing for foreign exchange risk and a weighted average tenure of over seven years. "Without factoring the hedging, the borrowing cost is significantly below 6 per cent," said Mr Balachandran.

"For the current fiscal, we are looking for innovative methods of financing to partially neutralise the northward movement of interest rates," he said, adding that they are yet to decide the exact amount of funds to be raised in the first round. He, however, added that the corporation has no plans to go for a public issue simply because of the overheads involved.

On the proportion of funds that IRFC would raise from the domestic and overseas market, Mr Balachandran said, "This would depend on the need and the Central Bank's nod, especially with reference to infrastructure projects."

In 2004-05, 38 per cent were offshore borrowings, though in the outstanding portfolio, and 11 per cent of IRFC borrowings were from external sources.

Sharing details about IRFC's debut issue of the euro-yen bond in the international market for Japanese yen 13 billion or Rs 540 crore in March, he said, "We were the first issuer out of India to set a benchmark at an aggressive spread of 70 basis points over a five-year period, with a coupon of 1.43 per cent."

The lead managers were ABN Amro, Daiwa Securities SMBC and UBS. The investors were banks (33.2 per cent), insurance companies (20.7 per cent), central banks (16.6 per cent), fund managers (20.7 per cent), hedge funds (8.6 per cent) and retail (0.2 per cent).

"Had we opted for a dollar loan, interest rates would have been at least over 5 per cent and would have resulted in a higher payout for us on account of withholding tax. Moreover, the company's decision to opt for yen as the currency of borrowing largely sheltered IRFC from turbulence in the dollar market," said Mr Balachandran.

On whether IRFC would consider another euro-yen issue this fiscal, he said, "We are not averse to a replay. We would also consider Sukuk financing issued in the Gulf."

IRFC registered a 3.5-per cent increase in lease income in 2004-05 from Indian Railways, over Rs 1,776.34 crore recorded in the previous financial year. From the railways' perspective, the increase in lease payout is marginal, compared to asset growth during 2003-04. "Through a 3.5-per cent increase in lease income, Railways ensured a 11-per cent growth in capital formation of leased assets," said Mr Balachandran.

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