Rail IPOs to help meet ~1-trn sell-off target

To meet the revised disinvestment target of ~1 trillion in 2017-18, the Narendra Modi government is in the process of carrying out the planned initial public offering (IPO) of two rail companies, IRFC and RITES, before March 31.

The RITES IPO could involve a 12 per cent stake of the Centre, while in the case of IRFC, 10 per cent could be offloaded.

This is to be followed immediately by a ‘piggy back’ sale in which the company will issue additional shares, which will take investors’ stake in the company to 15 per cent.

The Centre could also issue a further fund offering of its Bharat-22 ETF if the two IPOs don’t make up the ~75 billion gap between ~1 trillion and the ~924 billion, which it has achieved so far, Business Standard has learnt.

In the case of IRFC, there were doubts whether the Centre would be able to take it to the bourses before March 31 due to a deferred tax liability issue. However, the ministry of corporate affairs has now exempted the company from an accumulated deferred tax liability of ~63.92 billion, which will add to the company’s net worth.

According to multiple sources in the Department of Investment and Public Asset Management (DIPAM) and the Ministry of Railways, with the tax dispute over, the listing of the railway subsidiary will happen soon.

IRFC is considered the most lucrative among the railways’ subsidiaries and as of March last year it has assets worth ~1.52 trillion — including 8,998 locomotives, 47,825 passenger coaches, and 214,456 wagons that it has funded so far.

It has also provided ~36.12 billion to other railway entities (Rail Vikas Nigam Ltd and RailTel Corporation) and capacity enhancement works of about ~20.78 billion.

The exemption from the tax liability will help IRFC raise additional debts of more than ~630 billion.

According to the government, after the exemption, IRFC will not require any equity infusion.

IRFC faced a deferred tax liability as its depreciation was greater than its profit. The company did not pay tax under normal assessment and is subject to a minimum alternate tax (MAT) of 21 per cent. Besides, it had to make a provision for the deferred tax liability at 35 per cent. Thus the company’s books were bearing a total tax provision of 56 per cent. This will now come down to 21 per cent, leading to substantial gains in profit after tax (PAT), earnings per share and book value per share.

The Bharat 22 ETF, launched in November, earned the Centre ~145 billion after being subscribed four times. Officials say there is still a massive interest among institutional investors for the index, and hence a new tranche could be issued soon.

Meanwhile, Dipam has already invited bids for engaging an advertising agency for RVNL divestment of up to 25 per cent.