Railways’ financing arm IRFC has approached the Department of Investment and Public Asset Management, seeking an exemption from the planned stock market listing of the firm. The 100% state-owned firm fears that listing will affect its fund-raising capacity and also make borrowing expensive for it.
IRFC raises funds from various sources and provides support to railway projects under the head of extra budgetary support, a crucial part of the transporter’s capex plan. It owns the railway assets created with its funds and the transporter pay lease rentals to it.
The firm raises loans at a cheap interest rate given it is 100% owned by the government and has a sovereign backing, and funds railway projects by adding a margin of 25-30 basis points.
The government’s stated policy is to list all profit-making PSUs and IRFC is one among them. However, IRFC has argued that once its gets listed, it will be under pressure from shareholders to increase the rate at which it provides funds to the railways to ensure higher returns, according to sources. The firm has also said international agencies may get jittery in case government’s holding goes below 100%, to which DIPAM has asked to cite such incidences.
Recently, World Bank’s Multilateral Investment Guarantee Agency (MIGA) backtracked from a proposal to arrange a virtual soft loan of $500 million to IRFC, which was to come at an interest rate of 5%. In comparison, LIC provides funds to IRFC at 7.5%.
MIGA helps multilateral lenders to make cross-border lending by identifying risk-free avenues in developing countries; sovereign guarantee (usually accorded to 100% state-owned entities) is one of its chief criteria.
As a result, IRFC has been looking to raise some `55,000 crore via market borrowings, including the more expensive short-term bridge loans, against `28,550 crore planned earlier.
The Ministry of Railways is also engaged in a dialogue with the Ministry of Corporate Affairs to fix a tax liability issue of IRFC, which is affecting the net worth of the company, making it unattractive for listing. IRFC has around `7,000 crore stuck as deferred tax liability.