The Hindu Business Line : Konkan Rly revamp proposal cleared

Benefits
A positive net worth would enable the company to participate in several international tenders, given its expertise in tunnelling, bridge building at high altitudes.
Konkan Railway is involved in the highest rail bridge being constructed in Jammu.

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New Delhi March 2 The Union Railway Minister, Mr Lalu Prasad, has approved a proposal to convert the Indian Railways' loan of Rs 2,627 crore extended to Konkan Railway Corporation Ltd into preferential equity.

With the proposed restructuring, the debt equity ratio of Konkan Railway Corporation would change to 0.76:1 from 6.5:1. In effect, the net worth of Konkan Railway would turn positive. The restructuring proposal is backed by the premise that this is a strategic rail link functioning without any State support.

The equity of Konkan Railway is held by the Indian Railways (51 per cent); and four State Governments — Maharashtra, Goa, Karnataka and Kerala — (49 per cent), through which the rail route passes.

The proposal now needs the Board for Reconstruction of Public Sector Enterprises (BRPSE) nod. Konkan Railway has an equity of Rs 803 crore and a total debt of Rs 5,253 crore. In case, the BRPSE approves the proposal, the issue also requires a Cabinet approval before being implemented.

BENEFITS

A positive net worth would enable the company to participate in several international tenders, given its expertise in tunnelling, bridge building at high altitudes, amongst others. Konkan Railway is involved in the highest rail bridge being constructed in Jammu.

However, most of the large international projects generally seek a positive net worth status of companies bidding for participation. Thus, despite its technical expertise in the arena, Konkan Railway is unable to liquidate this expertise internationally.

Similarly, the company can also market its anti-collision device and Sky Bus technology internationally, after they have the safety certificates. "Basically, several revenue streams would open up for Konkan Railway after this restructuring expertise," said official sources.

Moreover, backed by an improved debt-equity ratio, Konkan Railway can raise funds at relatively cheaper levels, and access the external market for cheaper funds. The avenues from where the company can raise funds would also expand. For example, pension funds generally look for a positive net-worth company for their long-term investments.

DEBT AND COST

On the debt side, Konkan Railway has external secured loans of Rs 2,625 crore, apart from the Rs 2,627-crore unsecured loan from the Indian Railways. While secured loans are backed by collaterals, unsecured loans are not.

The external loan consists of Konkan Railway bond issue of Rs 2,600 crore at an average cost of about 7.5 per cent with tenor of about seven to eight years. For loans extended by the Indian Railways, Konkan Railway builds in a cost of 7 per cent in its balance sheet though it does not affect its cash flow as it does not pay interest to the Indian Railways, as of now.

PERFORMANCE

Konkan Railway has registered an operating profit of Rs 130.9 crore in 2005-06, Rs 71.8 crore in 2004-05 and Rs 49.8 crore in 2003-04. The net loss for 2005-06 was Rs 242.5 crore, down from a net loss of Rs 305.4 crore (2004-05) and Rs 357.7 crore (2003-04). The increase in revenues has been driven by income from freight and other projects. The turnover was Rs 630 crore for 2005-06, Rs 425 crore (2004-05) and Rs 245.5 crore (2003-04).