IRFC banks on 3-5 year Bonds to raise up to Rs.4,000 Crore

Mumbai: Indian Railway Finance Corporation (IRFC), the stateowned financier for railway projects, plans to raise up to Rs.4,000 crore by selling bonds with shorter maturities as it aims to reduce borrowing costs by taking advantage of the Reserve Bank of India’s (RBI) falling rate cycle.

A top executive with the railways told that the triple-A rated company may launch the bond issue as early as this week. IRFC may offer 3-5 year maturities, unlike its usual bond sales with 10-15 year maturities, to raise Rs.3,000-4,000 crore, the executive said, on condition of anonymity.

According to market participants, the rates could be fixed in the range of 8.15-8.20%. “There is no point in paying more than 8% rate for 10 years, especially when interest rates are trending downward,” the executive said. “Rather, IRFC can go for shorter maturities below five years and refinance the same periodically at lower rates.”

Issue arrangers may meet the company on Tuesday. In less than two months, RBI has cut the benchmark policy rate by 50 basis points, marking the beginning of the much-expected lower interest rate regime.

IRFC was mandated to raise around Rs.12,000 crore this financial year compared with Rs.14,942 crore a year ago. The company has already collected close to Rs 8,000 crore. In 2015-16, it has targeted to mop up 47% higher funds at Rs.17,655 crore as the Indian Railways proposes to expand operations. The issuer has apparently better asset liability management that allows some leeway to go for relatively short-term borrowings. Its average borrowing duration is about nine years while the average repayments are of the same.

Moreover, it may obtain some equity infusion from the railway ministry to shore up the capital base, market sources said. Unlike other state-owned financiers such as Rural Electrification Corporation, IRFC does not hit the market frequently, but occasionally with a larger size. “IRFC enjoys a premium in the market being a quasisovereign security,” said Shashikant Rathi, head, investments and capital markets, Axis Bank.

IRFC had last raised Rs.2,625 crore in January, offering 2.3 year bonds at 7.83% with 15 months call and put option, which ensures an investment exit route before the maturity.

Short-bond maturities will serve the issuer good on two counts by helping it bring down borrowing costs in a softening interest rate cycle, as the company can always refinance its funds needs periodically. It will also attract FII investments at finer rates due to their bulk buying, dealers said.