Irfc To Raise $65 Million Via Ecbs

Indian Railway Finance Corporation (IRFC) is going in for a $ 65 million external commercial borrowing (ECB), ending a four-month long halt in domestic companies approaching the international market with their debt papers.

In a related development, the finance ministry has approved the securitisation plan of Air India to raise $200 million against the future receivables from its ticket sales from the US sector for the next seven years. The ministry, however, has asked Air India to raise the $200 million from its proposed securitisation float in two tranches of $ 100 million each. The ministry has also decided to treat the securitisation float of Air India as an ECB.

The IRFC overseas debt issue, which will be in the form of a syndicated loan, will be arranged by ABN Amro and State Bank of India. While ABN Amro will take the entire foreign exchange and derivative cover of the ECB, SBI's role will be that of a co-arranger to the issue.

IRFC is raising the dollar debt to retire some of its costly yen borrowings. It is immediately planning to retire an 8.8 billion yen debt with the proceedings from its ECB.

According to banking sources, the IRFC ECB will be a test case for corporates planning to go back to overseas debt markets for their borrowing plans, which stopped after India's nuke tests, and the subsequent two-notch downgrading of the country's sovereign rating by the Moody's Investors Services.

Interest rates on Indian borrowings shot up to 450-500 basis points above London inter-bank overnight rates (Libor) in the aftermath of the nuke tests and the Moody's downgrading. This has forced many corporates to either abandon or postpone their ECB plans till the interest rates soften.

According to officials linked with the IRFC ECB, since the debt issue size is comparatively small, the arrangers are hopeful of raising the entire amount of $65 million from the Asian region. The deal, however, is expected to be concluded at over 100 basis points above Libor, they said.

Investment bankers pointed that with the recent success of the Resurgent India Bonds (RIB) by SBI, sentiments in overseas market has again started turning favourable towards India and many of the international banks and bulk investors such as pension funds and insurance firms has started showing increased appetite for Indian debt papers.

The only overseas debt support to an Indian company during the interim period from Moody's downgrading and the IRFC ECB was in the form of a credit line extended to the Bharat Aluminium Company (Balco) by a consortium of mainly European banks for purchasing some equipment from an Italian company. The credit amount was extended at a very competitive rate of 40 basis points above Libor.