Annual Report English.pmd - Indian Railway Finance Corporation Ltd.

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Media CoverageTwo reputed international publications viz. International Financing Review (IFR) and Finance Asia havelauded JPY 13 billion Euro Bond issue of IRFC for its aggressive pricing and choice of JPY as thiscurrency of borrowing. This is the first Indian Credit to issue publicly in Yen since 1991.Credit Research Reports on the Company brought out by Research Divisions of some of the banks havebeen circulated amongst prospective investors during the year. These Reports highlight the position ofpre-eminence of your Company amongst issuers out of India.Performance HighlightsDuring the year under report, your Company has posted profit after tax of Rs.404.77 crore, up Rs.25.92crore over the performance of the previous year. Earning per share has increased to Rs.1,744.71 fromRs.1,632.98 and the over-head to turnover ratio is only 0.15%.Your Directors have pleasure in informing that in spite of incremental borrowing for the year, prudentfinancial management has resulted in a reduction in expenditure by Rs.28.32 crore from Rs.1,483.54crore during 2003-04 to Rs.1,455.22 crore during 2004-05. The operating income has also gone up byabout Rs.38.08 crore. Increase in other income and the savings in expenditure have helped to shore upthe profit before tax by Rs.92.92 crore.The Balance Sheet size of your Company stands at Rs.20,450.04 crore, with a net worth of Rs.2,392.91crore and with no Non-performing Assets (NPA) in the books of your Company.Savings achieved through Financial EngineeringYour Directors take pleasure in informing that your Company has successfully negotiated and broughtdown the contracted interest payment liability of the existing outstanding borrowings, as outlined below :-(i) Interest re-structuring on Term Loans from BanksDuring the year under review, your Company has successfully refinanced / restructured some of the highcost term loans which would result in a saving of Rs.9.32 crore over the remaining life of these loans.(ii) Interest re-structuring on Bond IssueYour Company exercised call option and redeemed in March, 2005, 18 th Series taxable bonds bearing acoupon of 10.95% and having a residual maturity of two years. Refinancing has been done by availingterm loan of matching tenor. This would result in a saving of Rs.19.10 crore to your Company over theremaining life of these bonds.(iii) Foreign Currency Borrowings and risk managementDuring the year under review, your Company has successfully raised USD 250 Million equivalent of fundsthrough external commercial borrowings.A sum of USD 100 Million has been raised through syndicated Loan Market. Besides, IRFC raised JPY2.65 Billion (Equivalent to USD 25 Million) through private placement of bonds in the Japanese capitalmarket and JPY 13 Billion (equivalent to about USD 125 million) through Euro Yen Bonds in the offshoremarket at coupons of 1.85% and 1.43% respectively. This has enabled the Company to drive down thecost. This has also helped the Company to diversify its investor base further.Your Directors have pleasure in informing that your Company’s presence among the international investorshas been further established as evidenced from the overwhelming response received by its offshoreissues.Your Directors are also pleased to state that your company has prudently eliminated the exchange raterisk associated with the principal repayment in respect of USD 100 Million and JPY 13 Billion, at competitiveprices. Prudent timing of the hedging has resulted in reducing the principal repayment in rupee terms ata lower level than the inward remittances, resulting in upfront saving of Rs.11.17 crore.5
As regards JPY 2.65 billion borrowing, your Company has created a separate Exchange Variation Reserveand proposes to cover the risk on this relatively small amount through a methodology not adopted earlier.In respect of an earlier syndicated loan, your Company has converted the floating rate interest liability toa fixed rate through a swap, and has eliminated the interest rate risk associated with the upwardly movementof 6M USD Libor.Your Company has been adopting prudent risk management strategies. Your Company has eliminatedthe exchange rate fluctuation risk in respect of principal repayments in all cases where bullet repaymentsare involved with tenor not exceeding five years. Outstanding foreign currency borrowings with maturityprofile longer than five years, carry amortised half-yearly principal repayments, with the result that the riskgets mitigated by virtue of repayments taking place progressively at different points in time. Hedging ofprincipal repayment in such cases is considered selectively in a need based manner.During the current fiscal 2005-06, your Company proposes to refinance one of its earlier Syndicated Loanof USD 75 Million and reduce the margin over the 6M USD Libor, so as to effectively reduce the interestcost during its residual life.(iv) Interest Rate DerivativesYour company had in the past contracted interest rate derivative products in respect of a few bond issues,converting its liability to floating rates linked to appropriate bench mark indices. This has resulted in a totalsavings of about Rs.39.94 crore, which includes Rs.8.96 crore during 2004-05.Redemption of Bonds / Repayment of LoansYour Directors are pleased to inform that during the year under review, your company has successfullyredeemed / repaid its debt obligations amounting to Rs.2773.44 crore.Bonds amounting to Rs.747.36 crore were redeemed on their maturity, whereas bonds amounting toRs.200 crore were redeemed by exercising call option by the Company. Further, Floating Rate Notesamounting to USD 150 Million (Rs.672.10 crore) raised in July,1997 were successfully redeemed. Besides,a sum of Rs.1153.98 crore has gone towards principal repayment of term loans.During the current fiscal 2005-06, Bonds amounting to Rs.480.80 crore have been redeemed tillSeptember,2005 which includes a sum of Rs.399.80 crore redemption through exercise of call option.Further, bonds amounting to Rs.829.33 crore are scheduled to be redeemed by March,2006. Under thelong term loans, an amount of Rs.569.67 crore has been repaid till date and a further sum of Rs.589.66crore is scheduled to be repaid by March,2006.DividendThe Company has paid an interim Dividend of Rs.70 crore, in February 2005 and your Directors recommenda further amount of Rs.45 crore to be paid as dividend making the aggregate dividend payment of Rs.115crore for the year 2004-05. This is 49.56% of paid up Capital and 28.41% of Profit After tax.ReservesAfter providing for dividend and dividend tax for the year ended 31 st March, 2005, a sum of Rs.50 crorehas been transferred to General Reserve to meet the requirements of the Companies Act, 1956, a sum ofRs.4 crore has been transferred to Exchange Variation Reserve and the balance of Rs.220.31 crore hasbeen taken to the Bonds Redemption Reserve.Capital StructureThe entire paid-up share capital of the Company is held by the President of India and his nominees.During the year, there has been no change in the paid-up share capital of the Company, which stood atRs.232 Crore at the end of March 2005.6
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