Indian Railway Finance Corporation (IRFC’s) move to raise ₹2,450 crore through bond issue has resulted in demand for ₹10,000 crore.
“We have got demands for almost ₹10,000 crore. There is an oversubscription on the institutional side, and on the retail side, we have got 96 per cent subscription,” IRFC Managing Director Rajiv Datt told BusinessLine .
IRFC had floated tax-free bonds of 10-year and 15-year tenure, which closed on Monday. For institutional investors, the coupon rate was 7.04 per cent (10 years) and 7.35 per cent (15 years). For the retail investors, the coupon rate is 7.29 per cent for 10 years and 7.64 per cent (15 years).
Nabard, which also in the market with its ₹3,500-crore tax-free bond issue, got oversubscribed in the institutional segment and almost subscribed in the retail segment, said sources.
IRFC’s ₹500-crore tax-free bond issue, with an option to raise ₹2,450 crore, has been subscribed by 19 times, according to BSE data. It had already raised ₹1,050 crore tax-free funds through private placement. With this issue, IRFC has mobilised ₹9,500 crore through tax-free bonds in the current fiscal, and another ₹1,000 crore from the domestic market. It has a target to raise ₹11,500 crore this fiscal. “We will raise the remaining amount by this month-end,” said Datt.
IRFC is the fund raising arm of Indian Railways, and primarily invests in locomotives, wagons and coaches. More than half of Railways’ moving assets, such as engines, wagons and coaches are financed by IRFC. As lessor, it retains legal title to the assets leased under the terms of the Standard Lease Agreement with the Railway Ministry. This allows the company to obtain depreciation benefit under the tax law.
The lease period is typically 30 years, comprising a primary component of 15 years followed by a secondary period of 15 years. Full recovery of principal and interest is effected during the primary lease period itself. After 30 years, assets may be sold to the Railway Ministry for a nominal price. According to IRFC, it runs essentially a risk-free business, with foreign currency risk and interest rate risk associated with its borrowings either transferred to Railway Ministry or hedged at Railway Ministry’s cost.
(with inputs from KR Srivats)