'IRFC not comfortable with project financing'
Q&A with IRFC MD Rajiv Datt
Indian Railways Finance Corporation Ltd (IRFC) will be the next state-run body to come up with a tax-free bonds issue from January 21-29. Its Managing Director Rajiv Datt is upbeat about the issue. In a interview with Vrishti Beniwal & Disha Kanwar he shared his plan for the company. Edited Excerpts:
What will be your key priorities this year?
The immediate focus will be tax-free bonds. We are putting all our efforts to ensure the issue is a huge success. The advantage of tax-free bonds is that they would be at a rate of at least 100-150 basis points lower than taxable issue and this gets reflected in the lease rentals to the railways. After that we will see what the balance requirement of the railways is and then decide what route to take before March 31. Then we are looking forward to the Railway budget and what are going to be our targets for 2013-14. Based on that around March-April we will plan for the next year. We will prepare the break-up of the borrowing plan, take it to our board, and time it as and when the markets are favourable.
Some other tax-free bonds issues have not received a very encouraging response from investors this year. How confident are you about IRFC issue?
We are very confident that the issue will go through without much of a problem because IRFC is a company which is around for 25 years and has done exceedingly well. Investors know us well. The response to our earlier issue in 2011 was exceedingly well. We were probably the only one where the retail portion filled up before the issue closed. This is an excellent opportunity for investors because the returns offered are very good. If you take pre-tax yields it will be close to 11 per cent for corporate and QIBs. For retail investors it’s half a percentage point more. If you look at private placement we have had the highest among all the issuers. Out of Rs 10,000 crore we have already collected about Rs 1,100 crore.
Railways have a huge appetite for funds. What are the other sources you could look at for raising funds? Would this be the last fund raising exercise this financial year?
We borrow domestically and overseas. Overseas also our issuances have been extremely successful. The total requirement of railways is Rs 15,000 crore this year and we have already given to them about Rs 2,600 crore. So Rs 10,000 crore will come from tax-free bonds. For the remaining we will either float bonds or take term loans depending upon railways requirements.
How much is your overseas borrowing target this year?
It was up to $750 million and we have raised $300 million. Whether we need to raise the remaining $450 million that call will be taken after the tax-free bond issue is over.
Would you prefer overseas borrowing because interest rates are lower?
Its lower but there are currency risks and exchange rate risks. You have to take into account the cost of borrowing as well as the cost of hedging. Interest rates are now declining domestically. We will take a call (on where to borrow from) after the credit policy review later this month.
How was your experience with project financing? Would you like to finance more projects in future?
Project financing was a one-time exercise last year. This year there is no proposal for it. Probably, the railways have also recognized that IRFC’s strength is financing rolling stock. Last year, against the target of about Rs 8,000 crore the final target came to Rs 2,000 crore which we provided. Project financing has some risks. It has construction risks, time and cost overrun risks. So we are not comfortable doing that.
What are the targets set for you in the 12th Five Year Plan?
Nothing has been officially communicated to us but indications are that it will be close to Rs 90,000 crore to 1 lakh crore. It will be a substantial jump from the Eleventh Plan.
Over a long-term do you see a diversification in IRFC’s role?
The way I see it will continue to be the funding arm of the Ministry of Railways. Capital requirements of the railways, especially for rolling stock, are going to be large and our role will be to continue to support it. Investors are comfortable with this business model.