Konkan Railway Corporation Ltd, which is in the market to raise $45 million through floating rate notes (FRNs), has mopped up $115 million.
The company plans to retain the $70 million oversubscription amount to prepay costlier debt raised last year from the international market.
KRCL has been able to raise $115 million from international banks and other investors at a coupon of 72.5 basis points over the six-month London Interbank Offered Rate (Libor).
However, the all-in cost to the company, which includes arranger's fees, is higher at 89 basis points over Libor. This represents a steep drop in its borrowing costs by 61 basis points since its debut in the global debt market last September.
The current all-in price of 89 basis points over Libor is significantly lower than the price Konkan Railway paid in September 1996, when it raised $70 million at a coupon of 130 basis points over Libor.
The all-in cost of the funds was still higher at 150 basis points over Libor.
The reason behind the fall in the price of KRCL's borrowings is that the project is almost complete now.
An official at ANZ Grindlays, which has lead-managed the offering, said: "In September last year, Konkan Railway had yet to complete six tunnels along the route. Now, they have only one tunnel left to complete."
Hence, according to the official, Konkan Railway Corporations earlier issue was considered akin to project finance by the investing banks as the incomplete project faced higher risks. This led to a high cost of borrowing for the company as investors wanted a premium for the risk of investing in an incomplete project.
However, now the project is being seen as a going concern by investors.
This is because parts of the route have become operational and the rest is expected to be commissioned soon. This has reduced the risk perception among the investors and led to dramatic fall in price.
KRCL's floating rate note issue in September 1996 was managed by Bank of America.
