IRFC Considers Refinancing Multilateral Loans for Railway Projects.

The Indian Railway Finance Corporation (IRFC) is evaluating the possibility of refinancing high-interest multilateral loans taken for various railway infrastructure projects, officials told businessline. This move could help lower borrowing costs and improve lending margins for the state-run financier.

According to sources, IRFC is particularly considering refinancing World Bank and Asian Development Bank (ADB) loans used for railway projects, including 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 ecosystem may also be considered for refinancing, public-private partnership (PPP) projects will not be included.

A senior official stated, “We are still exploring options to refinance loans taken for railway projects at lower rates and more favorable terms. The proposal is under discussion, and no specific project has been identified 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. The World Bank’s interest rates vary by country, with India’s lending rate reported at 8.56% in 2022, while ADB loans are linked to LIBOR plus a maturity premium.

Reducing Forex Outflows and Strengthening Margins

A second official noted that IRFC aims to repay costly loans and absorb them into its books, effectively reducing foreign exchange outflows and strengthening its lending margins. The focus will also be on Metro Railway project financing and refinancing options.

To support this, IRFC is mobilizing more funds through 54EC bonds, exploring zero-coupon bonds, and tapping into the domestic bond market. The company is also monitoring opportunities in external commercial borrowing (ECB) markets.

Shifting Business Model Amid Changing Railway Funding Strategy

IRFC’s core business has traditionally involved raising funds from domestic and international markets to finance rolling stock acquisitions and leasing assets to Indian Railways. However, with Indian Railways reducing its reliance on IRFC since FY24 to cut indirect debt burdens—favoring budgetary support for capital expenditure—the PSU is now reworking its business model.

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

Over the years, IRFC has financed railway infrastructure projects worth ₹5.5 lakh crore, and its railway business accounts for nearly 99% of its AUM. Moving forward, the company aims to broaden its financing approach beyond direct leasing to Indian Railways.

HBL