Railways subsidiary RITES, which is set to be listed, is likely to diversify into station development by acquiring a 25 per cent stake in Indian Railway Stations Development Corporation (IRSDC), which has a more than Rs 1 trillion uplift plan for 600 stations.
The government is likely to divest a 12 per cent stake, or 24,000,000 equity shares, in RITES through an initial public offering (IPO) at a face value of Rs 10 each.
The IPO is expected in March as the Department of Investment and Public Asset Management (Dipam) is looking to achieve disinvestment of Rs 1 trillion in 2017-18. Of that, Rs 924.8 billion has been mopped up. This is 27.5 per cent higher than the targeted Rs 725 billion in 2017-18.
“We have been approached by IRSDC to contribute up to Rs 2.5 billion by buying out up to 25 per cent of its equity share capital. This proposal, however, is in its preliminary phase and yet to be proposed for risk assessment and investment decision by the company,” RITES said in its draft red herring prospectus (DRHP).
RITES Chairman and Managing Director Rajeev Mehrotra said his company was awaiting approval from the Securities and Exchange Board of India to go ahead with the listing plans.
SBI Capital Markets, IDBI Capital Markets & Securities, Elara Securities India, and IDFC Bank are the advisors to the IPO. Through this, the engineering consultancy arm of the railways will become the first railways subsidiary to be listed after Container Corporation of India (Concor).
As part of giving more financial autonomy to IRSDC, it was converted into an equal joint venture between Ircon and the Railway Land Development Authority in September 2017. Before that, it was an Ircon subsidiary.
IRSDC, the nodal agency for the station redevelopment programme, is planning to raise money from the market and invest in engineering, procurement, and construction contracts. After getting clearances, IRSDC will invite private players for commercial development, which, according to the railways, would reduce risks for investors.
RITES, which has posted a turnover of Rs 15.09 billion in 2016-17, is strategically important to the railways because it has operations in 55 countries of the world.
The government wants to raise Rs 4-5 billion from the listing of RITES. “I believe that this is a buyers’ market. As there are not too many IPOs coming up, investors will be spoilt for choice and the demand may go up if RITES is coming at a good price,” said Arun Kejriwal, founder of advisory firm Kejriwal Research & Investment Services.
However, the listing of Indian Railway Finance Corporation (IRFC) and Ircon are likely in the next financial year.
Dipam had appointed ICICI Securities, SBI Caps, IDFC, and HSBC as bid managers for IRFC.