IRFC hopes to raise ~1,000 crore from Capital Gains bonds

Indian Railway Finance Corporation (IRFC), the financing arm of the Indian Railways, aims to mop up ~1,000 crore from its recent issue of capital gains bonds.

“IRFC has opened the issue on November 10. We are targeting to raise Rs 500 crore with a green shoe option in case of oversubscription. We are very optimistic of tapping Rs 1000 crore from the capital gains bonds,’’ said S K Pattanayak, managing director, IRFC.

IRFC is the fourth entity to be authorised by the Ministry of finance to issue such bonds. Previously, Rural Electrification Corporation Ltd (REC) and National Highways Authority of India (NHAI) had the sanction to issue these bonds. From this year, the ministry has given approval to two more NBFCs (non-banking financial companies) - IRFC and Power Finance Corporation (PFC) to go for such bond issue.

“The bonds have a lock-in period of three years and closes on March 31, 2018. It is a safe bet for investors as there is no question of default. The bonds are secure, redeemable and nontransferable and are a cheap source of funding for us. REC and NHAI have been doing it for years and we are doing it for the first time”, he said.

The bonds issued have benefits under Section 54 EC of the Income Tax Act, 1961. These bonds have a lock in of three years and presently yielding an interest of 5.25 per cent per annum. A person who has received capital gains in a year may invest in these bonds and can save the tax on capital gains. An investor can invest maximum up to Rs 50 lakh in these bonds during a financial year.

IRFC is also getting prepared for listing- it is one of the five Railway PSUs selected for listing. “IRFC is preparing to get listed. This may happen either before the close of the current financial year or first quarter of next fiscal. There are some issues being worked out by the Ministry of Corporate Affairs. We are looking to mop up at least ~1000 crore plus some premium. If we do not raise our own equity, we cannot match our borrowing requirement that is expected to go up in the future”, Pattanayak said.

IRFC meets around 30 per cent of Indian Railways’ extra Budgetary requirement. Usually, the company raises Rs 30,000 crore funding for the Railways each year but in this fiscal, the amount may scale up to ~40,000 crore.

“Railways project their quarterly requirement and accordingly, we raise funds. In this financial year, we have passed on ~17,000 crore. Normally, the fund requirement is heavy towards the last quarter. We believe in the coming years, IRFC may have to tie up ~60,000-70,000 crore each year as the Railways need more funds especially for meeting the ambitious electrification targets”, he added.

IRFC is mandated to raise ~2.5 lakh crore for the Railways by 2019-20.Of this, Rs 1.5 lakh crore is to come through institutional funding from the Life Insurance Corporation of India (LIC).

“Institutional finance would be our key fund raising route for railway projects. We have already raised Rs 25,000 crore via this route. IRFC would repay the fund in the next 20 years”, he said.

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