The Dedicated Freight Corridor Corporation of India Ltd (DFCCIL) – a Ministry of Railways SPV – is looking to refinance nearly ₹5,000 crore of its ‘high interest bearing’ loans from multilateral agencies, primarily the World Bank and is in talks with NBFCs like IRFCL, senior officials aware of discussions, that began a-month-back, told businessline. This refinancing would allow the special purpose vehicle and the Ministry to save on interest costs by “at least 200 basis points” (2 percentage points), thereby bringing down interest payouts on the loan.
Apart from IRFC Ltd (Indian Railways Finance Corporation Ltd), other government-backed non-banking financial companies being considered as refinancers include Power Finance Corporation Ltf (PFC) and HUDCO Ltd.
If it goes through, this would be the first trance of multilateral agency loans that the Railways have refinanced after the end of the moratorium period.
In financing parlance, refinancing refers to replacing an existing loan or debt obligation with another loan under different terms and interest rates (mostly easier terms and repayment obligations, etc.).
DFCCIL is currently financed through a combination of debt from bilateral and multilateral agencies, as well as equity infusion by the Ministry of Railways.
The debt component is raised by India’s Finance Ministry through agencies like World Bank, Asian Development Bank and Japan International Cooperation Agency (JICA).
According to Praveen Kumar, Managing Director, DFCCIL, some “refinancing options are being explored.” “We have begun discussions, may be a month-ago, and IRFCL could be one of the options,” he told businessline; but did not share details.
The IRFCL, a Railway CPSE that focuses mostly on project financing through market borrowings, has already expressed interest in taking up refinancing proposals that include railway lending and other “government-backed projects.”
Discussions On
According to a second official, the available refinancing options were discussed “last month,” with government-backed NBFCs preferred primarily for their competitive rates. In fact, “one tranche” of World Bank loans would be considered in the first phase.
In fact, against a 9 – 10 per cent interest component (on multilateral agency loans), the SPV is looking at a 7 – 8 per cent interest payout without associated conditions like withholding tax and so on.
It would be difficult to refinance JICA loans immediately which are for a 40 year tenure with 10 – year moratorium.
Some of the other international agency loans carry at least 7 per cent interest and other terms and conditions that factor in currency conversion fluctuation, withholding tax, and different charges.
“So we have taken it up with the Ministry of Railways; and may be after that there needs to discussions with the Finance Ministry who will need to go ahead and clear these refinancing options, take it up with multilateral agencies. In the first phase we would look at Rs 5000 crore loans received from the World Bank. Ideally, we would be happy with a 150 – 200 basis point interest advantage,” the second official said.
“We have got feelers from some government-backed NBFCs too,” he added.
The DFCCIL is in charge of the operation and maintenance of India’s first and only dedicated freight movement routes covering 2843 km on the eastern and western sides of the country. The two corridors - the Eastern Dedicated Freight Corridor (EDFC) from Ludhiana to Sonnagar (1337 km), which is fully operational, and the Western Dedicated Freight Corridor (WDFC) from Jawaharlal Nehru Port Terminal to Dadri (1506 km), 88 per cent (around 1300 km) operational - are coming up at a cost of Rs ₹1,24,000 crore.