IRFC may raise Rs 6,300 Crore via Rupee-denominate Bonds abroad

Mumbai: Indian Railways Finance Corp may become the first domestic entity to sell offshore rupee-denominated bonds after RBI allowed this in its April 7 monetary policy.

The finance wing of the Indian Railways could raise as much as Rs 6,300 crore through such an offer as it seeks to generate the record amount that minister Suresh Prabhu needs to fund his ambitious plans to revamp the ailing network. Other pledges that need to be met include bullet trains and air-conditioned local trains in Mumbai. The institution is discussing such bonds with investment banks, three people aware of the talks told.

Rupee-denominated bonds are seen reducing funding costs at least by 150-200 basis points compared with domestic fund-raising avenues as the exchange-rate risk is shifted to the buyers from sellers. A basis point is 0.01 percentage point.

IRFC Managing Director Rajiv Datt confirmed that it was exploring such a fund-raising plan.

“We are keen to raise rupee-denominated offshore bonds,” he said. “Once RBI guidelines are finalised, we may sell such securities for up to $1 billion allocated for external commercial borrowings (ECBs) this year (FY16).”

The government has mandated a total IRFC borrowing target of Rs 17,655 crore for the fiscal year, an all-time high that’s about 50% higher than the previous year.

This is planned to be raised through a combination of rupeedenominated bonds (through the ECB route), tax-free bonds and domestic corporate bonds. In his railway budget speech, Prabhu had said that about Rs 1.27 lakh crore would be spent on renovating tracks and other safety measures over the next five years. About Rs 7.29 lakh crore will go toward capital expenditure in the same period.


IRFC is fully government owned and is therefore treated a quasi-sovereign entity by investors, especially foreign portfolio managers. In the international market, IRFC bonds are at par with India’s sovereign rating of BBB-, the lowest investment grade ranking. Its domestic bonds are rated AAA. IRFC had earlier asked the government for permission to float rupee-denominated bonds overseas.

The instrument allows investors to participate in the Indian bond market without having to register locally.

“The only people who would be interested in this are people who don’t want to come to your country and be registered as FPIs (foreign portfolio investors),” said Hitendra Dave, managing director, head of global markets, HSBC India. “The entire work everything gets exported out.”

IRFC last mopped up $900 million through the ECB route, including $400 million in syndicated loans and $500 million through offshore bonds in FY14. The latter offered the lowest rate in that financial year at 3.917% as investment appetite was quite high, said a person involved in that fund-raising process.

The Asian Development Bank and the International Finance Corporation, the World Bank’s private lending arm, sold rupeedenominated bonds last year for Rs 300 crore and Rs 1,000 crore, respectively.

“These issues have been received with interest. The appetite for rupee debt amongst international investors is a welcome development,” RBI said in its April 7 monetary policy announcement.

“In view of this, it is proposed to expand, in consultation with the government of India, the scope of such bond issues by the international financial institutions as also to permit Indian corporates eligible to raise external commercial borrowing (ECB) through issuance of rupee bonds in overseas centres with an appropriate regulatory framework.”

The railway ministry also intends to fast-track sanctioned works on 7,000 km of double/third/fourth lines and commission 1,200 km in 2015-16 at an investment of Rs.8,686 crore.