The bond market could soon see a generous serving of high quality papers soon from the railways, but at a higher cost. Indian Railways is expected to double its market borrowing from the current Rs 5,000 crore to finance investment in its dedicated freight corridors, The borrowing, likely to be channelled through Indian Railways Finance Corporation (IRFC), will fund the cost of the Rs 28,000-crore project over the next five years.
While the Japan Bank for International Cooperation is likely to provide $ 5 billion for the corridor and related expansion projects, the rest will have to come from the railways. The railways? plan size at Rs 31,000 crore is just adequate to meet its rolling costs.
The attractiveness of railway bonds is usually built on the leasing pattern of its rolling stock to IRFC. But for the new bonds, that may be difficult on top of the stock already committed annually to IRFC. This would raise coupon rates. For IRFC, though, raising the additional funds may not be very difficult. It has already raised about Rs 1,200 crore this fiscal from the domestic market by issuing bonds with a weighted average cost of 9.8% at an average tenor of 12.5 years.
The railways has also toyed with the public-private partnership model, but railway minister Laloo Prasad is not keen on allowing major privatisation. Unless private players get long-term stakes, they are unlikely to be keen on such big-ticket investments. The finance ministry is unlikely to help out the railways, either. ?Given the government’s obligations under the FRBM Act, the railways should not expect budgetary support to eventually bail out the project,? a finance ministry official said.