(i) Indian Railway Finance Corporation is basically an NBFC that finances Indian Railways for the acquisition of assets, which includes both powered and unpowered vehicles, for example, locomotives, coaches, wagons, trucks, flats, electric multiple units, containers, cranes, trollies of all kinds. Apart from this they also help Indian Railways for leasing of railway infrastructure assets and national projects of the Government of India (collectively, “Project Assets”) and lending to other entities under the Ministry of Railways, Government of India (“MoR”).
(ii) In short, the Ministry of Railways is responsible for the procurement of Assets and for the improvement, expansion, and maintenance of Project Assets. IRFC is responsible for raising the finance necessary for such activities.
(iii) IRFC is wholly-owned by the Government of India acting through the MoR and is registered with the Reserve Bank of India as an NBFC (Systematically Important) and are classified under the category of an “Infrastructure Finance Company” under Section 45-IA of the Reserve Bank of India Act, 1934.
(iv) IRFC Operations
a) Leasing- They basically purchased Indian railways assets and then provide them on lease to the Ministry of Railways. The lease period is typical of the duration of 30 years comprising a primary period of 15 years followed by a secondary period of 15 years. In terms of the leasing arrangements, the principal amount pertaining to the leased assets is effectively payable during the primary 15 years lease period, along with the weighted average cost of borrowing and a margin determined by the MOR in consultation with us at the end of each Fiscal.
The total value of Rolling Stock Assets financed by IRFC as of March 31, 2019, was 1,94,044 Crores.
b) Lending- IRFC also has a presence in lending activities and has provided funds to various companies in the Railway sector like Rail Vikas Nigam Limited (RVNL), Konkan Railway Corporation Limited, Rail Land Development Authority, Railtel Corporation of India, and Pipavav Railway Corporation Limited.
In FY2020, the MoR has provided targets for market borrowings from IRFC for funding of Rolling Stock Assets and Project Assets, which includes financing of 28,400 Crores for Rolling Stock Assets and financing of 631 Crores for project assets being executed by RVNL and financing 26,440 Crores for Project Assets through institutional finance.
How IRFC makes money?
a) In FY2019, the Cost-plus based Standard Lease Agreement with the MoR has a margin of 40 bps over the weighted average cost of borrowing for financing Rolling Stock Assets and a margin of 35 bps over the weighted average cost of borrowing for financing Project Assets.
b) In the cost-plus pricing model for financing to Other PSU Entities, which typically provide for a relatively higher margin. IRFC has maintained an average net interest margin of 1.79% from Fiscal 2017 through Fiscal 2019.
Cost of borrowings and Credit Rating for IRFC?
The Cost of Borrowings in Fiscals 2017, 2018, and 2019 was 6.97%, 6.82%, and 7.09%, respectively. They have received the highest credit ratings from CRISIL – CRISIL AAA and CRISIL A1+, ICRA – ICRA AAA and ICRA A1+, and CARE – CARE AAA and CARE A1+.
Objects of the IRFC IPO:
IRFC IPO Details:
|Open Date:||Jan 18 2021|
|Close Date:||Jan 20 2021|
|Face Value:||₹ 10 Per Equity Share|
|Issue Type:||Book building|
|Issue Size:||4633 Cr.|
|Lot Size:||575 Shares|
|Issue Price:||₹ 25-26 Per Equity Share|
|Listing Date:||Jan 29 2021|
Promoters And Management:
Financials of IRFC IPO:
|Employee Benefit Expense||3||6||6||6||2||2|