Date:04/07/2005 URL: http://www.thehindubusinessline.com/2005/07/04/stories/2005070400450600.htm

Back IRFC raises Rs 1,200 crore via loans, bonds

Mamuni Das

INDIAN Railway Finance Corporation (IRFC) has raised Rs 1,200 crore from the market, with Rs 700 crore in the form of bank loans and Rs 500 crore through the bond route.

While Rs 700 crore has been raised from five nationalised banks for a five-year tenor at the rate of 7 per cent, Rs 500 crore has been raised by issuing bonds with a weighted average cost of 6.18 per cent.

IRFC is the fund raising arm of the Indian Railways. Within the Rs 500-crore bonds issue, the public sector unit raised Rs 350 crore for a five-year term at "one year G-Sec plus 37 basis points," a senior IRFC official told Business Line. "The cost works out to a competitive 6.07 per cent on an average," he added.

For the rest of the Rs 150 crore, IRFC tried a "novel method" to raise the amount in 15 units of Rs 10 crore each, with each unit having coupons linked to the prevailing G-Sec. The tenor of the bonds ranges from one to 15 years.

The coupon for each tenor is the G-Sec rate for that particular tenor minus ten basis points, said the official. For example, for the Rs 10 crore unit raised for five-year duration, the coupon would be "five year G-Sec minus ten basis points." Similarly, for the Rs 10 crore unit of 13 year tenor, the cost to IRFC would be the prevailing G-Sec rate for 13 years minus ten basis points.

"This is the first deal of its kind in India. Even the Government has not used such a combination," said the official on the Rs 150-crore G-Sec linked issue.

As on date, the cost for the Rs 150 crore issue works out to 6.66 per cent, said the official.

The bonds have been issued to UTI, Citibank, Stanchart, Bank of America, ICICI-Securities and DSP Merrill Lynch.

"Through this issue, we have covered the risk of possible increasing interest rates since the liability decreases by Rs 10 crore every year. Moreover, this helps balance our asset liability management," said the official.

As for the Rs 700-crore loan, IRFC raised the amount from United Bank of India, Syndicate Bank, Allahabad Bank, Dena Bank and State Bank of Hyderabad.

The entire amount will be used to fund the rolling stock acquisition of the Indian Railways. "The funds have been raised against the rolling stock of Indian Railways," said the official.

IRFC is expected to raise Rs 3,400 crore for buying assets for the Indian Railways this fiscal.

In fiscal 2004-05, IRFC borrowed a total of Rs 2,888 crore out of which offshore borrowings were Rs 1,096 crore and domestic borrowings were Rs 1,792 crore.

The total borrowings were at a weighted average cost of 6.12 per cent after providing for the foreign exchange risk and a weighted average tenure of over seven years.