The Indian Railway Finance Corporation (IRFC), the borrowing arm of the Indian Railways, is set to float rupee-denominated bonds in the international market in January, in a pioneering move targeted at raising $200-300 million. The announcement was made by Prime Minister Narendra Modi while speaking at Wembley Stadium in UK on Friday.
The Ministry of Railways for the current financial year had set a borrowing target of Rs 17,665 crore, for IRFC.
The overseas rupee-denominated bonds will have a minimum tenure of five years and a 5% withholding tax will be applicable for interest paid by IRFC to a non-resident lender. IRFC has already invited applications from banks and finance institutions to act as Joint Lead Arrangers to undertake the issue of offshore rupee-denominated bonds; the technical proposals of which will be opened on November 20. “Our prime focus will be London, but we are also looking to tap markets in the far East and Middle-East and the process has already been initiated. We will be floating these bonds by the end of January next year.” a senior official at IRFC said. “The Joint Lead Arrangers will help in the documentation, marketing and meeting the prospective investors.” he added. The the public sector unit will be utilizing the amount raised to acquire rolling stock which will be leased to the IR.
The Reserve Bank of India earlier this year had issued the final guidelines which allowed domestic companies to raise rupee-denominated overseas bonds, besides IRFC; India Infrastructure Finance Co. Ltd and National Thermal Power Corporation Ltd. also plan to issue such bonds. Market sources state that such bonds will help IRFC raise cheaper funds and also shift the burden of hedging to the investors buying these bonds.
The national transporter through IRFC has also received the first tranche of Rs 2000 crore in the previous month from Life Insurance Corporation Of India (LIC). LIC plans to invest Rs 1.5 lakh crore in the coming five years in the railway sector by subscribing to IRFC bonds. IRFC with a paid-up capital of Rs 4,126 crore and a net worth of Rs 13,642 crore has by the end of March, 2015 cumulatively funded more than Rs 1,25,000 crore to the rail sector.