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Rs 4,600 crore IRFC IPO may hit markets by Dec-end

This will be the fifth railways company to hit the Dalal Street since 2017. The four listed ones include IRCON International, RITES, Rail Vikas Nigam and Indian Railway Catering and Tourism Corporation

Indian Railway Finance Corporation (IRFC), the financing arm of the Indian Railways, is expected to float an initial public offering (IPO) of Rs 4,600 crore by December-end. What is unique about the IPO is for the first time a publicly-owned company will be raising money from anchor investors.

"By early next week we'll file the updated draft red herring prospectus (UDRHP). We expect to get the SEBI approval very soon. If not by December-end, then by first week of January, we may launch the IPO," IRFC Chairman and Managing Director Amitabh Banerjee told Business Today.

The IRFC IPO will see sale of 178.21 crore equity shares, comprising a fresh issue of 118.80 crore equity shares, and an offer for sale of 59.4 crore equity shares by the Government of India. This translates into an issue size of Rs 4,600 crore, out of which the fresh issuance will comprise Rs 3,100 crore and OFS Rs 1,500 crore.

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This will be the fifth railways company to hit the Dalal Street block after the Union Cabinet approved listing of five railway companies in 2017. The four listed ones include IRCON International, RITES, Rail Vikas Nigam and Indian Railway Catering and Tourism Corporation (IRCTC).

Banerjee, talking about business model of the company, says even though IRFC can raise money from the market, it cannot advance it to the Indian Railways directly. "We acquire assets of Railways and keep it in our books. We get the benefit of depreciation on those assets and we give these assets to Indian Railways on financial leasing terms for a certain period and get lease rentals on an annual basis," he says.

Emphasising on its risk-free business model, Banerjee adds that all the lease receivables to IRFC from the Ministry of Railways is incorporated in the Union Budget of India. "How much lease rentals are to be paid to IRFC are earmarked in the Budget, so these lease rentals make for assured revenues for us. It is more than the government guarantee. We don't even have to invoke the guarantee because any default in the repayment of rentals will tantamount to sovereign default, which is unlikely," he says.

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Growth prospects

With Rs 102 lakh crore worth national infrastructure projects in offing, Rs 15 lakh crore is expected to be earmarked for Ministry of Railways. "The expected capital outlay on the infrastructure development of Indian Railways is around Rs 15 lakh crore by FY25. We hope to disburse 50-60 per cent of it in next five years. In FY20, we contributed about Rs 71,000 crore to Indian Railways capex outlay plan. We hope to meet 70 per cent of total capex requirement of Railways in FY21," he says.

The IRFC had disbursed Rs 3.4 lakh crore as of March 2020 to Indian Railways. So far in FY21, it has disbursed Rs 30,000 crore.

Banerjee says IRFC has never had any NPA in its books in last 34 years of its existence. The company's AUM as of March 2020 stood at Rs 2.66 lakh core with a net worth of Rs 31,000 crore, 13.19 per cent return on equity (RoE) and 1.5 per cent of return on assets (RoA).

IRFC, established in 1986, was set up as a Special Purpose Vehicle to raise money for Ministry of Railways at a time when money available for capital outlay was limited. It is an NBFC-SI with infrastructure financing status.

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