IRFC IPO
IRFC may have to go for public issue
With the Indian Railways increasingly raising funds from the market, Indian Railway Finance Corporation (IRFC) may have to go for an initial public offer this fiscal or early next fiscal to raise funds.
This is because the company, which mobilises finance for Railways, has to maintain a debt-equity ratio of 10:1 under the stipulated RBI norms.
Given the target to raise Rs 7,200 crore this fiscal, IRFC would be approaching a debt-equity ratio of 9.99:1 by March ’09.
With the Indian Railways planning massive capital expenditure over the next few years, in order to continue raising more funds, IRFC needs equity infusion. Since raising Rs 2,500 crore in 2002-03, IRFC now needs to raise Rs 7,200 crore (including Rs 293 crore for sister concern Rail Vikas Nigam Ltd).
Mr Kashyap said, “IRFC has registered an impressive growth rate of 19 per cent compounded annually during this period,”
Now for additional equity, either the Railways would have to invest more funds, or IRFC may have to tap the market with an IPO. It may also opt for a private placement route and get select financial institutions to invest in the company.
Irrespective of what route IRFC takes for raising its equity, the company would not divest. “We would not divest any existing equity. We will expand the equity base and issue fresh shares,” .
Share Capital
Currently, IRFC has an authorised share capital of Rs 1,000 crore and a paid up equity of Rs 500 crore, following the Railways’ equity infusion of Rs 268 crore last year.
In 2007, IRFC had lower levels of authorised and paid up capital of Rs 500 crore and Rs 232 crore respectively.
If IRFC were to raise funds through private placement or IPO, then it would get the benefit to charge a premium on its equity, which is unlikely to be the case if the company were to raise funds from the parent Railway Ministry.
In the backdrop of IRFC approaching a higher debt-equity ratio, a recent transaction assumes significance where IRFC raised Rs 800 crore from LIC for Railways in a manner which ensured the debt was not registered in IRFC’s balance sheet.
The securitisation deal required Indian Railways to repay the debt to LIC through half-yearly payments over a nine-year period.
As on March 2007, IRFC had raised debt to fund 52 per cent of Indian Railways’ 3,270 electric locomotives, 40 per cent of 5,035 diesel locomotives, 65 per cent of 39,787 coaches and 51 per cent of 2.37-lakh wagons, reports The Hindu Business Line
