Lenders worried over rail container licence lock-in

Lending companies planning to invest in the private container train business are concerned over a clause in the model concession agreement that says a defaulting rail operator's licence cannot be transferred to another company for a year from the commencement of the contract period.

According to sources, the agreement signed between the railways and individual container operators allows the lenders to have step-in rights under which the railways would have the right to take control of the project in case of default.

However, although the assets can be seized by the lending company in case of default, the licence can be transferred only after one year.

This year, operators have paid Rs 10 crore (for the non-premium routes) and Rs 50 crore (for the Delhi-Mumbai route) each, for the licence.

According to Mohanjit Singh, vice-president of infrastructure and project finance company, SREI Infrastructure Finance Ltd, the lock-in period of one year means serious risks for the lenders.

"In the first two or three years of the private container train business the risk element is very high as, barring Concor, none of the other players has any experience in the business."

According to Singh, with every company expected to raise at least around Rs 100 crore to invest in the business, lending companies would be taking a risk in the first year of doing business with a company.

However, railway officials said the reason for a minimum lock-in period was that they did not want the licence to become a transferable commodity.

"If operators are allowed to transfer their licence at a short notice then non-serious players may enter the market who will only be interested in buying and re-selling the licence within a short period," an official said.