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How competitive is your coupon rate, considering other bonds in the market offer higher returns?
Our bonds are oversubscribed (breaching the Rs 1,500-cr initial subscription). We have offered bonds at coupon rates of 8.48 per cent and 8.65 per cent for 10 years and 15 years, respectively. What gives us an edge is the fact that IRFC bonds are tax-free. So, one ends up earning an effective interest rate of 11-11.5 per cent. Our lean model of business gives us credibility in the eyes of investors.
What is the margin you are earning?
Today, 25 per cent of the railways’ annual plan is financed by us. In the last three years, we have borrowed Rs 45,000 crore for the Indian Railways. The borrowings have been growing substantially and our margins have also grown. We earn 0.5 per cent, after providing for the cost of procurement and paying the interest to the market.
How has the international market responded to the bonds?
We were one of the first financial institutions to go abroad. The response has been good. Since the government is our owner and client, foreign investors consider our bonds quasi-government borrowing and that brings a lot of credibility. We are like a proxy for the government. We raise most of our money from the Asian and European markets. We have also explored the Japanese market and received an encouraging response.
At what rate has your external borrowing increased?
For the past five years, our external borrowing has remained 15-20 per cent of the total borrowings. That’s the share we try to maintain.
Are you looking at diversifying your portfolio to project financing?
Our business model has been very successful. We have been created to ensure that whatever borrowing we do is at the lowest possible cost. This is possible because the investor has been comfortable with the business model where the risks are almost negligible and the company is very lean.
If you enter into project financing there are risks. These risks are minimal in rolling stock because as soon as the rolling stock comes into operation lease rentals start flowing in. So, it’s an assured kind of business.
In infrastructure projects there are issues of time and cost overruns. And what may be the projections may not be true and may not finally materialise. This may cause concerns for our investors. So, we may not get the rates at which we currently borrow, and may have to pay higher premium.
As of now we are not diversifying the portfolio, let us see what the future holds. It’s only in 2011-12, that we gave the Railways Rs 2,000 crore for some projects but subsequently in 2012-13 and 2013-14, we have stuck to funding just the rolling stock.
