IRFC COVER-final - Indian Railway Finance Corporation Ltd.

the Task Force, in the MOU meeting held in February, 2010,called upon the Company to examine all aspects of the matterafresh and frame a new proposal, if necessary after dueconsultation with the industry, and place the same beforethe Ministry of Railways for due consideration. TheCompany is committed to take necessary action in the courseof the year.Market Borrowings during 2009-10For the year 2009-10, the Company was set a target ofborrowing of R 9,000 crore for creation of rolling stockassets for the Ministry of Railways and a target of R 170crore by way of loan to Rail Vikas Nigam Ltd. for investmentin bankable projects being executed by them for MOR. Bothtargets were revised upwards through Revised Estimates ofMinistry of Railways to R 9,150 crore and R 370 crorerespectively in February, 2010. Thus, total mandate forborrowing during the year became R 9,520 crore. Besides,against the target of R 6,907 crore for MOR for the year2008-09, actual asset acquisition by the Ministry was higherat R 6,991 crore. Consequently, the difference amount ofR 84 crore had also to be remitted to the Ministry during theyear 2009-10. At a total required borrowing of R 9,604 crore,this was the highest ever quantum of financing of its clientsby IRFC in a single year, exceeding the previous record ofR 7,200 crore during 2008-09 by a handsome margin of33.40%. The year continued to witness volatility ininternational financial markets, with concomitant adverseimpact on interest rates and liquidity in Debt Capital Markets.Matters were made even more difficult by the Government'sown heavy borrowing programme during the year, posingchallenge to the Company to locate appropriate windows ofopportunity to time its borrowings when the debt marketwas least crowded. During the year, yield on the bench mark10 Year G-Sec remained consistently high, averaging over7.27%, with a peak of 8.02%. Further, a combination ofvarious macro-economic factors resulted in spreads,including those for 'AAA' entities, continuing to remain wideduring the year. While the 'AAA' spread over 10-year G-Seclogged an average of 1.34% p.a. during the year, IRFC'scost of borrowing corresponds to a spread of 0.43% only - asaving of 0.91% p.a. as compared to the remaining best inthe business.Your Directors take pleasure in sharing with you that theCompany proved equal to the daunting challenges, and metthe targets assigned successfully. Riding on the back of avery successful External Commercial Borrowingtransaction to raise R 2,159 crore at a very competitiveinterest cost of USD LIBOR plus 2.30%, and Tax-freeBonds issuance of R 1,920 crore with an average tenor of8 years, and average cost of 6.44%, the Company managedto complete the borrowing targets assigned at an averagecost of 7.70% p.a. during 2009-10. This was significantlylower than the cost of 8.98% achieved during the previousyear. Other components of borrowing included R 3,671crore through Taxable Bonds and R 1,500 crore throughTerm Loans, with the balance amount of R 354 crore beingused up from the Company's own corpus. Timing is ofessence in financial markets, and the Company took fulladvantage of relatively more benign conditions in the firsthalf of the year to raise an amount of R5,270 crore.Likewise, the timing of external commercial borrowing wasalso very apt, and IRFC was not only amongst the firstcompanies in the country to tap overseas markets after theimpact of global financial crisis showed signs of abatement,but also delivered a tight pricing which drew widespreadadmiration across the markets. The Company'sperformance in raising Tax-free Bonds was also notablenot only in terms of fine pricing achieved (6.00% p.a.payable semi-annually for 5-year Bonds, 6.30% for 7-yearBonds and 6.70% for 10-year Bonds) but also in its successin creating market for Tax-free corporate bonds of 7-yearsand 10-year tenors.Besides, in order to meet its operational needs of refinancinga portion of existing debt, the Company also included in itsborrowing portfolio an amount of R500.11 crore raisedthrough a Securitisation transaction involving assignmentof an identified stream of Lease Receivables from MOR tothe investors.The weighted average tenor of incremental borrowing duringthe year was 8.24 years which is quite comparable with theweighted average tenor of the lease.The value of rolling stock assets finally identified by MORagainst IRFC funding has been kept at R 9,018 crore, whichis R 132 crore lower as compared to the Revised Estimatetarget assigned by MOR to the Company. This amount formsopening balance with MOR for the year 2010-11.12