IRFC’s $1-billion bond issue can set benchmark for sovereign bonds, says MD

Having successfully borrowed $1 billion from the external market, Indian Railway Finance Corporation (IRFC) is likely to raise another $500 million soon.

“The $1-billion bond issue — which IRFC raised through 10-year and 30-year repayment tenure — was raised at competitive cost and can set the benchmark rate for the government if it were to go for sovereign bonds,” IRFC Managing Director Amitabh Banerjee told BusinessLine .

Speaking on the forthcoming IPO of IRFC, Banerjee said, “We are set to be listed on March 15.”

Referring to the 30-year tenure of funds raised, Banerjee said this is the first such bond issue by a central public sector enterprise. “We have raised $700 million for 10 years and $300 million for 30 years. The cost of borrowing $700 million was 3.25 per cent (160 bps over 10-year benchmark of US-treasury). The $300 million for 30 years was raised at a cost of 3.95 per cent,” said Banerjee, adding that these are extremely low rates.

The exact cost for 10-year funds is marginally lower than that of EXIM Bank, said an industry source. Incidentally, Reliance Industries has raised funds from external sources for 30 years.

The bonds will be listed in stock exchanges at London, Singapore and INX in Ahmedabad. IRFC has a window to raise upto $2 billion. “External borrowings of IRFC include $300 million from a large public sector bank, apart from another loan of ¥300 million, said Banerjee.

Indian Railways’ fund raising arm has a target to raise about ₹65,000 crore of funds this year. It has already raised ₹30,000 crore, excluding the $1 billion (₹7,200 crore at current $ rates).

Fund use

On how the funds will be used, Banerjee said the funds can be deployed on either railway infrastructure projects or rolling stock like wagons, engines and coaches. However, for projects, the public sector enterprise usually puts money borrowed through its “institutional funding” mechanism.

While the public sector unit funds a large chunk of Indian Railways’ wagons (79 per cent), coaches and engines (85 per cent each), it recently started funding infrastructure as well. IRFC has raised funds for 27 per cent of the money spent on railway projects recently.

For funding railways projects through “institutional finance”, LIC has a memorandum of understanding with Indian Railways to lend ₹1.5 lakh crore to the national transporter. However, LIC has disbursed only ₹18,000 crore since 2015-16, said Banerjee. As a result, IRFC has been resorting to funds from other sources and has borrowed ₹60,000 crore since 2015-16.

For the present fiscal, IRFC has a target to borrow about ₹65,000 crore as per revised estimates, an extra ₹10,000 crore from the budgeted target.

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