IRFC may diversify fund portfolio beyond Railways ahead of IPO

Indian Railway Finance Corporation (IRFC), the financing arm of the Indian Railways, is aiming to diversify its funding beyond Railways. At present, the Railways has 99 per cent share of the funds raised by the corporation.

As IRFC expects to get listed by the close of this financial year or the first quarter of 2018-19, it is looking at a possibility of fund diversification.

“When you go for listing, your shareholders' expectations go up. There is a possibility of diversification. We may go for borrowing to different rail entities. But, we have to evaluate the risks and returns. The first thing we got to ensure is that we are not adding NPAs (non-performing assets)”, said S K Pattanayak, managing director at IRFC.

IRFC operates a risk-free credit model with zero NPA. This is in glaring contrast to other state-run non-banking financial companies (NBFCs) like Power Finance Corporation (PFC) with an NPA of 12 per cent or even Rural Electrification Corporation (REC) whose NPA is in the range of 4-5 per cent.

The corporation has a memorandum of association (MoA) which stipulates lending only to the Railways. But, with IRFC looking beyond Railways, the agreement might see some tweaking.

“Railway SPVs (special purpose vehicles) have been created for different purposes like port connectivity and coal evacuation. Most of the SPVs have shown interest in borrowing from us. This is because our borrowing cost is the lowest in the country. Our borrowing cost is 7.15 per cent with a mark-up of 50 basis points for the Railways”, he said.

Rail SPVs aside, IRFC is also open to raising funds for entities in the rail sector such as Rail Vikas Nigam Ltd (RVNL), IRCON International, Konkan Railway, IRCON International Railtel and Railway Energy Development Corporation (REDC).

“A team from Konkan Railway has negotiated with us for fundraising. They are electrifying their entire 740 km track. In the past, we have extended small loans to RVNL and Railtel but their share is negligible in our overall portfolio compared to the Railways”, Pattanayak said.

As a fund raiser for the Railways, IRFC has already passed on Rs 17,000 crore out of Rs 40,000 crore mandated to be raised during this fiscal. In the years to come, IRFC may have to tie up Rs 60,000-70,000 crore each year, as project funding requirement of the Railways is set to expand. As of now, 60 per cent of the funds raised by IRFC meets the rolling stock requirement of Railways. The residual funding is for project financing but the trend is likely to reverse in the future.