The Hindu Business Line : IRFC open to diversification, if credit rating is not affected

With the Indian Railways lining up mega-projects such as the dedicated freight corridor, the Indian Railway Finance Corporation (IRFC), the finance raising arm of the Indian Railways, says it is open to diversification and taking on additional responsibilities as long as its credit-rating does not get negatively affected.

Keeping Options open

“We are keeping our options open. If the Indian Railways has other debt requirements, we would consider those options as well. However, the idea is to protect the credit rating so that our core business does not get negatively affected,” Mr R. Kashyap, Managing Director, IRFC, told Business Line when asked whether IRFC would raise funds for the freight corridor project.

Freight corridor

The dedicated freight corridor project is estimated to cost approximately Rs 28,000 crore, and is likely to be taken up on a debt-equity ratio of 2:1. Since the project is targeted to be completed in five years, there is likely to be massive fund mobilising requirements.

Currently, IRFC primarily raises funds for buying rolling stock assets of the Indian Railways. Backed by letter of comfort from Railways, it is able to raise funds at competitive rates — close to what the Indian Government enjoys.

Ratings

Early this year, Standard & Poor’s upgraded IRFC’s credit rating to investment grade from speculative. This fiscal IRFC has a mandate to raise a record Rs 5,000 crore for the Indian Railways and about Rs 240 crore for Rail Vikas Nigam Ltd.

“Since a negative change in credit rating would mean more expensive funds for IRFC and in turn higher leasing costs for Indian Railways, we have to carefully consider diversification options,” Mr Kashyap said.

Earlier, IRFC has also raised relatively small amounts for other railway public sector units such as Rail Vikas Nigam Ltd and Pipavav Rail Corporation Ltd.

Letter of comfort

It has also been approached by several railway customers ( such as steel and coal companies) with proposals to raising finance and lease wagons for those firms. IRFC can technically raise finance for organisations other than Railways. However, it has written to Railways asking for a letter of comfort for leasing wagons to steel and coal firms.

The comfort letter is required because the fund raising would be backed by the wagons and the wagons would be in use in the Indian Railways system.

Thus in case of any default by these customers, IRFC wants an assurance from the Railways for providing the appropriate support mechanism.

More Stories on : Railways | Financial Institutions | Credit Rating

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