The Indian Railway Finance Corporation (IRFC), the market borrowing and lending arm of the national transporter, is actively exploring “refinancing” – to take on its books – some of the existing “high-interest bearing” multilateral loans extended for Railway projects, officials told businessline.
Generally refinancing is a system that involves replacing existing debt with new debt at a different interest rate and terms of repayment.
Typically, sources said, World Bank and ABD loans for Railway projects, including RRTS (Rapid Rail Transit Systems), could be looked at for refinancing; whereas “other companies, SPVs and JVs -which come under the Railway ecosystem can also be considered.” The PPPs will however not be considered.
Some of the major World Bank funded Railway projects in India include the two Dedicated Freight Corridors – Eastern and Western; whereas ABD funded ones in the Delhi – Meerut RRTS projects.
“We are still considering options to refinance loans – at lower rates and favourable conditions – taken for Railway projects, especially which have been funded by multilateral institutions. It’s a proposal that is under discussion. There is no specific project name at the moment,” the source said.
The last World Bank loan of $245 million from the International Bank for Reconstruction and Development (IBRD) – for funding India’s Rail Logistics Project – has a maturity of 22 years, including a grace period of 7 years.
World Bank’s interest rates vary country to country and depending on the currency in which it is taken. As per last available numbers, the lending interest rate in India was reported at 8.56 per cent in 2022, according to the World Bank collection of development indicators.
ADB lends at LIBOR (London Interbank Offered Rate), and it includes a maturity premium and a repayment grace period.
High cost loans
A second official said, IRFC would repay some of these high cost loans and put them on their books – a sort of a loan purchase arrangement – that will reduce forex outflows, while improve the Navratna PSUs (IRFCs) lending margins.
“There will be a special focus on Metro Railway project financing and refinancing options,” the second official said.
In fact, IRFC top brass said the company has been “mobilizing more and more funds under 54EC bond market and exploring zero coupon bonds, and domestic bond markets”. It is also keeping an eye on any opportunity from various currencies in ECB market.
When asked, Manoj Kumar Dubey, CMD, IRFC, told businessline: “We are looking all options. We are recalibrating our growth plans with active action for steady AUM (asset under management) numbers, with plans to harness better deals and margins in coming quarters.” Railway business accounts for nearly 99 per cent of its AUM.
Over the years, the Navratna PSU has funded Railway infrastructure projects worth of ₹550,000 crore.
The State-run company’s core business has been to raise money from domestic and overseas markets to finance rolling stock acquisitions and lease out these to the transporter; and also finance project assets.
Since Indian Railways has not sought fresh funding from IRFC since FY24 as part of a plan to cut its indirect debt burden – and most of the capex is through budgetary support – IRFC has had to rework its business model.
“Our intent is to diversify beyond our direct leasing model to Indian Railways,” Dubey said.
