Cost-Cutting on Tracks: IRFC's Refinancing Play for Mega Projects

The Indian Railway Finance Corporation (IRFC) is assessing the potential refinancing of high-interest multilateral loans secured for various railway infrastructure projects. This strategic move aims to lower borrowing costs and enhance lending margins for the state-run financier.

According to sources, IRFC is considering refinancing World Bank and Asian Development Bank (ADB) loans utilized for projects such as the Delhi-Meerut Rapid Rail Transit System (RRTS) and the Dedicated Freight Corridors (Eastern and Western). While Special Purpose Vehicles (SPVs) and Joint Ventures (JVs) within the railway sector may also be considered, public-private partnership (PPP) projects will not be included in the plan.

A senior official stated, “We are exploring refinancing options to secure lower rates and more favorable terms for railway project loans. The proposal is still under discussion, and no specific project has been finalized yet.”

The last World Bank loan of $245 million for India’s Rail Logistics Project had a 22-year maturity period, including a seven-year grace period. While the World Bank’s lending rate for India stood at 8.56% in 2022, ADB loans are linked to LIBOR plus a maturity premium.

Another official highlighted that IRFC aims to absorb costly loans into its books, reducing foreign exchange outflows while improving lending margins. Additionally, the corporation is focusing on financing and refinancing Metro Railway projects.

To support this initiative, IRFC is mobilizing funds through 54EC bonds, exploring zero-coupon bonds, and leveraging the domestic bond market. The company is also keeping an eye on external commercial borrowing (ECB) opportunities.

Traditionally, IRFC has raised funds from domestic and international markets to finance rolling stock acquisitions and lease assets to Indian Railways. However, with Indian Railways reducing its dependence on IRFC from FY24—favoring budgetary support for capital expenditure—the PSU is reworking its business model.

IRFC Chairman & Managing Director Manoj Kumar Dubey confirmed the company’s strategic shift, stating, “We are recalibrating our growth strategy to maintain a steady asset under management (AUM) while securing better deals and margins in the coming quarters.”

Having financed railway infrastructure projects worth ₹5.5 lakh crore, with nearly 99% of its AUM tied to the railway sector, IRFC is now looking to diversify its financing approach beyond direct leasing to Indian Railways.

News by Rahul Yelligetti.