Railways seeks FinMin nod to raise $500 mn via masala bonds

The Indian Railways has approached the finance ministry seeking its approval to raise $500 million (about ~3,300 crore) through rupee-denominated bonds or masala bonds to invest in infrastructure projects, A K Mittal, chairman of the Railway Board, told Business Standard.

If this happens, the railways will join the bandwagon of three other Indian companies, HDFC, state-run NTPC and Adani Transmission, which opted for masala bonds before.

The first to opt for rupee-denominated bonds was HDFC in July, where it raised ~3,000 crore, followed by NTPC, which raised ~2,000 crore and another ~500 crore by Adani Transmission in August. HDFC is also likely to go for a second tranche of bonds in September-October. The railways would raise the funds through the Indian Railways Finance Corporation (IRFC), which will be used in infrastructure projects. IRFC raises funds through rupee term loans from banks, taxable bonds, tax-free bonds and also foreign funds with due hedging. As part of Prime Minister Narendra Modi’s plan to spend ~8.5 lakh crore over five years for railway modernisation, the national carrier was looking at various sources for funds. The investment is expected to increase by 20 per cent in 2016-17 to about ~1.21 lakh crore. Earlier this year, Railway Minister Suresh Prabhu had announced that the Life Insurance Corporation of India (LIC) had agreed to provide ~1.5 lakh crore for development of various commercially viable projects of the railways.

The investment was to be made over a period of five years. “Last year, railways had sourced ~9,000 crore from LIC and has set a target of ~20,000 crore for this year. We are also in talks with World Bank for raising $500 million and various pension funds,” Mittal added.

The ministry is set to float a Cabinet note soon for creating the Railways of India Development Fund, anchored by the World Bank, which would be used for modernisation of rail infrastructure in the country.