The Hindu Business Line : IRFC borrowing cost rises to 9.3% in 2007-08

New Delhi, April 3 The financing arm of Indian Railways, the Indian Railway Finance Corporation (IRFC), which could not tap the external market this year, raised the targeted Rs 4,609 crore in 2007-08 fiscal at an average cost of 9.3 per cent, which is slightly on the higher side given the organisation’s track in the last few years.

IRFC could not raise external commercial borrowings — something it has been doing for the past seven years – following the RBI guidelines in 2007 that barred external debt if the expenditure was to be in rupee terms.

In 2006-07, IRFC had brought down its total cost of borrowing to about 8.22 per cent supported by two bond issues in the external markets.

Of the total Rs 4,000 crore (2006-07) it raised Rs 2,900 crore from the domestic market and about Rs 1,100 crore from the external market.

“For 2007-08 fiscal, we raised the entire budgeted amount from the domestic market for a total cost of about 9.3 per cent, with an average tenor of close to 10 years,” Mr R. Kashyap, Managing Director, IRFC, told Business Line.

Had the public enterprise been able to raise external debt (for one fourth of the total required funds), it would have been able to keep the cost to below nine per cent levels at about 8.8 per cent.

LIC securitisation deal

“We recently raised Rs 800 crore from LIC through a securitisation deal.

It was designed in a manner which ensured that the transaction remains an off-balance sheet item for IRFC,” said Mr Kashyap, pointing out that this would help maintain a lower debt-equity ratio for the company.

The transaction was designed in a manner that requires Indian Railways to repay the debt to LIC through half-yearly payments over a nine-year period. About Rs 350 crore of the LIC transaction was routed for funding Railways assets, while the rest was used for financial restructuring.

2008-09 target

Initially, the company had a target to raise Rs 5,000 crore, which was revised downwards to Rs 4,750 crore initially and then to Rs 4,609 crore.

In 2008-09, IRFC has a target to raise a record Rs 6,907 crore for Railways asset financing.

For 2007-08, the public sector unit has paid an interim dividend of Rs 100 crore to Indian Railways. IRFC has raised funds for buying almost 50 per cent of Indian Railways rolling stock.

In terms of capacity and traction power, over 60 per cent Railways assets’ capacity is funded by IRFC, Mr Kashyap shared. The book value of these assets is about Rs 44,158 crore.

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IRFC borrowing cost rises to 9.3% in 2007-08