RailEnquiry

By Khushita Vasant

MUMBAI – Indian Railway Finance Corp. has put off a $300 million bond sale and will now wait for the euro-zone economic uncertainty to subside and for borrowing costs to decrease before going ahead, a top executive said Tuesday.

IRFC, a government agency which lends to railway projects, has sought central bank approval to extend a deadline to complete the fund-raising, Managing Director Rajiv Datt said.

The agency had earlier said it intends to raise $300 million by issuing five-year dollar bonds. It had until mid-July to complete the fund-raising.

As per central bank guidelines, Indian companies can borrow up to $750 million in foreign currency in a fiscal year without seeking approval from the central bank.

But for companies such as IRFC, whose outstanding foreign debt at $1.7 billion is more than 50% of its net worth, clearance is needed from the Reserve Bank of India.

“We’ve requested a three-month extension until Oct. 5,” Mr. Datt said.

The bonds were supposed to have been sold in the fiscal year which ended this March 31, but market uncertainty and higher borrowing costs stayed IRFC’s hand.

“There’s still a lot of uncertainty around the euro zone that is widening borrowing spreads and causing volatility in the rupee,” said Mr. Datt. “With the volatility in the rupee, hedging costs have also gone up.”

The Indian rupee weakened to a record 57.33 against the U.S. dollar on June 22. Tuesday, the greenback rose to its highest in nearly four weeks at 56.11 rupees.

Mr. Datt said the company’s foreign currency borrowing won’t exceed 15%-18% of its total debt.

IRFC raises money that the Indian Railways uses to purchase rolling stock assets such as locomotives, railroad cars and coaches and to meet its other developmental requirements.

March’s federal railway budget allowed IRFC to borrow 150 billion rupees ($2.7 billion) from the Indian market in the current fiscal year. Of this, 100 billion rupees can be raised through tax-free bonds.

Mr. Datt said the company is awaiting the finance ministry’s approval to go ahead with the tax-free bond issue. He expects the bond sale to be launched in late September or early October