MUMBAI – Indian Railway Finance Corp. Ltd. plans to raise the equivalent of $650 million via foreign currency bonds or loans in the fiscal year that starts on April 1, a senior executive said.
The company--which has so far issued debt only in dollars, yen and euro--may consider raising the money in currencies such as the Swiss franc, Malaysian ringgit, as well as the euro and yen, its managing director R. Kashyap said.
"We always look at the pricing [of a debt transaction] after hedging, because our end-use is in rupees. If it works out to be cost-effective for us after hedging, we'll be very happy to do a CHF [Swiss franc] transaction, because that is one thing we haven't done," Mr. Kashyap said in a recent interview.
Over the past couple of years, IRFC has increased its focus on the overseas debt market to meet its funding needs since the government has kept passenger fares unchanged for eight years. In this year's railway budget, freight rates haven't been raised.
Indian companies--particularly lenders--are in search of new markets and a fresh pool of investors as they try to avoid growing supply pressures in traditional overseas bond markets. Union Bank of India in January sold bonds denominated in Swiss francs while IDBI Bank was mulling ringgit-denominated bond issues as an alternative to rising yields.
IRFC's $650 million overseas borrowing will form part of the 105.94 billion rupees ($2.36 billion) it is allowed to raise, according to the federal budget presented in February.
The remaining will be a mix of tax-bearing bonds and term loans denominated in Indian rupees, Mr. Kashyap said.
The company can also raise 100 billion rupees by issuing tax-free bonds.
The total of over 205 billion rupees ($4.57 billion) is more than double the 91.2 billion rupees it was permitted to raise this financial year through March.
The money will be used to finance capacity enhancement projects and to buy rolling stock assets for the Indian Railways, the world's largest employer.
Mr. Kashyap said the company is planning to front-load its overseas borrowing for $500 million in the first half of the fiscal year beginning April 1.
IRFC raised $450 million and $350 million in September 2009 and September 2010, respectively, through syndicated loans, according to data and analytics provider Dealogic.
It is in the process of raising Y12 billion through a 15-year loan and $200 million by selling five-year bonds, Mr. Kashyap said.
"Our assessment is that, in the next three to four months, the conditions in the samurai [bond] market will improve. I think a few months from now, we should be in a position to enter the samurai market again without a guarantee from the Japan Bank for International Cooperation," Mr. Kashyap said.
As a government-owned company, IRFC has been mandated to employ a conservative hedging strategy.
Mr. Kashyap said the company tries to keep its external commercial borrowing portfolio within manageable levels, in a 12%-15% band of its total outstanding portfolio.
The company's foreign exchange exposure is $1 billion.
"The bulk of it is in dollars. Whenever hedging is done, we do it for the full residual maturity of any transaction," he said.
The company only engages in classical hedging, where an entity holds opposite positions in the market.
It has protected every yen trade, while a small portion of its euro and dollar trades remains unhedged.
"Some of the dollar transactions have been kept open because the medium-term view is that the rupee will remain strong against the dollar, and we didn't want to lock into a hedging arrangement," Mr. Kashyap said.
The Indian rupee has lost 0.7% against the dollar so far in 2011.
Mr. Kashyap said the company has been in the practice of taking a Principal Only Swap during the life of a debt transaction to protect against any event risk. "Because the repayment has to be on a single particular date and any untoward event taking place on that date could expose us to great risk."
Mr. Kashyap believes that the rupee will remain stable over the next three to four years.
"If the rupee slips to 47 or 48 to a dollar in the next three or four years, then we can still live with it," Mr. Kashyap said.
The company has felt the transient impact of foreign exchange volatility, but its profits haven't been hit in a big way as the overseas debt portfolio is small.
The company--which has so far issued debt only in dollars, yen and euro--may consider raising the money in currencies such as the Swiss franc, Malaysian ringgit, as well as the euro and yen, its managing director R. Kashyap said.
"We always look at the pricing [of a debt transaction] after hedging, because our end-use is in rupees. If it works out to be cost-effective for us after hedging, we'll be very happy to do a CHF [Swiss franc] transaction, because that is one thing we haven't done," Mr. Kashyap said in a recent interview.
Over the past couple of years, IRFC has increased its focus on the overseas debt market to meet its funding needs since the government has kept passenger fares unchanged for eight years. In this year's railway budget, freight rates haven't been raised.
Indian companies--particularly lenders--are in search of new markets and a fresh pool of investors as they try to avoid growing supply pressures in traditional overseas bond markets. Union Bank of India in January sold bonds denominated in Swiss francs while IDBI Bank was mulling ringgit-denominated bond issues as an alternative to rising yields.
IRFC's $650 million overseas borrowing will form part of the 105.94 billion rupees ($2.36 billion) it is allowed to raise, according to the federal budget presented in February.
The remaining will be a mix of tax-bearing bonds and term loans denominated in Indian rupees, Mr. Kashyap said.
The company can also raise 100 billion rupees by issuing tax-free bonds.
The total of over 205 billion rupees ($4.57 billion) is more than double the 91.2 billion rupees it was permitted to raise this financial year through March.
The money will be used to finance capacity enhancement projects and to buy rolling stock assets for the Indian Railways, the world's largest employer.
Mr. Kashyap said the company is planning to front-load its overseas borrowing for $500 million in the first half of the fiscal year beginning April 1.
IRFC raised $450 million and $350 million in September 2009 and September 2010, respectively, through syndicated loans, according to data and analytics provider Dealogic.
It is in the process of raising Y12 billion through a 15-year loan and $200 million by selling five-year bonds, Mr. Kashyap said.
"Our assessment is that, in the next three to four months, the conditions in the samurai [bond] market will improve. I think a few months from now, we should be in a position to enter the samurai market again without a guarantee from the Japan Bank for International Cooperation," Mr. Kashyap said.
As a government-owned company, IRFC has been mandated to employ a conservative hedging strategy.
Mr. Kashyap said the company tries to keep its external commercial borrowing portfolio within manageable levels, in a 12%-15% band of its total outstanding portfolio.
The company's foreign exchange exposure is $1 billion.
"The bulk of it is in dollars. Whenever hedging is done, we do it for the full residual maturity of any transaction," he said.
The company only engages in classical hedging, where an entity holds opposite positions in the market.
It has protected every yen trade, while a small portion of its euro and dollar trades remains unhedged.
"Some of the dollar transactions have been kept open because the medium-term view is that the rupee will remain strong against the dollar, and we didn't want to lock into a hedging arrangement," Mr. Kashyap said.
The Indian rupee has lost 0.7% against the dollar so far in 2011.
Mr. Kashyap said the company has been in the practice of taking a Principal Only Swap during the life of a debt transaction to protect against any event risk. "Because the repayment has to be on a single particular date and any untoward event taking place on that date could expose us to great risk."
Mr. Kashyap believes that the rupee will remain stable over the next three to four years.
"If the rupee slips to 47 or 48 to a dollar in the next three or four years, then we can still live with it," Mr. Kashyap said.
The company has felt the transient impact of foreign exchange volatility, but its profits haven't been hit in a big way as the overseas debt portfolio is small.
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