Konkan Railway retires Rs 200 crore high-cost debt

Konkan Railway Corporation (KRC) has exercised the call option on Rs 200 crore outstanding bonds carrying an interest rate of 10.5 per cent and issued fresh bonds at an interest rate of 5.7 per cent. Replacement of more such high-cost debt with low coupon rate bonds will reduce the average cost of KRC's borrowing to 5.7-7.5 per cent.

"Exercising the call option will result in savings of Rs 60-70 crore for the railways," KRC Managing Director B Rajaram told Business Standard. The railways have taken on their books the debt-service obligation of KRC, the special purpose vehicle in which the railways hold a 51 per cent stake.

KRC's gross earnings climbed 20.8 per cent to Rs 227.76 crore in 2002-03 over the previous financial year. With an expenditure of Rs 146.03 crore, the operating surplus for the year was 85.96 per cent higher at Rs 81.73 crore than Rs 43.95 crore in 2001-02.

The operating ratio, the amount spent by the corporation for every Rs 100 earned by it, with depreciation has gone below 100 for the first time. For 2002-03, it was 95, while in 1998-99-- the first year of KRC's operations""it was 152.77. The company is, however, yet to come out of the red on account of its high debt liability.

KRC was set up in 1990 to lay a 760 km railway link between Mangalore and Mumbai, passing through the Western Ghats. Initially, it raised funds from the market at liberal rates of interest. It has an equity base of Rs 800 crore, with railways being the majority partner and the balance equity held by the governments of Maharashtra, Goa, Kerala and Karnataka.

Freight traffic on the network has not materialised as per the estimates made during the conception of the project. In order to boost the earnings from freight, a freight transport users group was instituted in 2002-03, a first for the railways.

KRC has recently been given the task of constructing 14 road over bridges in Jharkhand, which is estimated to cost Rs 178.84 crore. Work on these bridges has started with the contracts having been awarded.

This is the second big work taken up by the corporation after the 90 km Katra-Qazigund section of the railway line in Kashmir, which is slated for completion by 2007.

Shedding load

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• High-cost debt replaced with low coupon bonds, reducing KRC's cost of borrowing to 5.7-7.5 per cent.
• Savings of Rs 60-70 crore for the railways
• KRC's gross earnings increased 20.8 per cent to Rs 227.76 crore in 2002-03