Indian Railways Finance Corporation (IRFC), the public sector enterprise that raises funds for the Indian Railways, has appointed lead managers to issue offshore bonds or rupee-denominated bonds, also called Masala bonds.

“We have appointed lead managers to raise about ₹6,000 crore,” Railways Finance Commissioner Sanjoy Mookerjee told BusinessLine . In these bonds, the investors bear the currency risk. This is unlike external commercial borrowings, which IRFC went for till now, where the currency hedging risk is borne by the Railways.

The lead managers are JP Morgan, Deutsche, BNP Paribas, HSBC, Stanchart and SBI Caps. This is to raise $300 million, said Rajiv Datt, Managing Director, IRFC, adding that the timing would depend on market conditions. Last year, for instance, IRFC did not raise offshore bonds as the markets were not conducive.

IRFC raises funds through taxable bonds, rupee term loans from banks and a little bit of international funds with due hedging. It has also raised funds through tax-free bonds in the past few years. These are being used for rolling stock. It has also been part financing rail projects at times, which has raised the overall borrowing cost for IRFC. IRFC has been funding over half of the Railways rolling stock assets, such as engines, wagons and coaches, with over 60 per cent in the last few years. The funds raised by it are largely risk-free as the Railway Ministry takes the hedging risk, according to IRFC data.

30-year lease

The corporation leases the assets to the Railways for 30 years, and the Railways pays the lease rentals to it in 15 years and maintains the assets for 30 years. At the end of lease period, IRFC sells the assets to the Railways for a nominal price. While IRFC has an arrangement with the Railway Ministry to help in debt repayments, it has not resorted to any such measures yet.

During 2005-06 to 2014-15, IRFC has been able to raise funds at costs lower other AAA-rated companies.

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