Bloomberg News

Indian Rail to Start 100 Billion-Rupee Bond Sale by September

June 20, 2011

June 21 (Bloomberg) -- India’s Ministry of Railways will start a 100 billion-rupee ($2.2 billion) domestic sale of tax- free bonds by September to help upgrade and expand Asia’s oldest train network.

The offering will be divided between a private placement and a later tranche for retail investors, Rajendra Kashyap, managing director of finance arm Indian Railway Finance Corp., said in a June 17 interview in New Delhi. Plans for the money include spending as much as 53 billion rupees on laying additional rail lines, 21 billion rupees for widening tracks and 8.5 billion rupees for electrification, he said.

The agency intends to raise a total of 205 billion rupees in the year ending March, including a record $750 million from overseas, as the ministry improves facilities to lure traffic from roads. About 1,300 kilometers of (808 miles) of new lines are due to be laid this year to meet rising travel and freight demand in the world’s second-fastest growing major economy.

Overseas, the finance unit’s plans include a $200 million term loan and a $300 million bond sale, Kashyap said. The funds will primarily be used to buy 18,000 cars for hauling iron, steel, cement and other cargo, he said.

“We’ve tested the market and we got some very encouraging offers,” he said. The finance unit, which employs 20 people, raised $740 million outside India in the year ended March.

The agency sold a $200 million bond in March. The 5-year 4.406 percent note yields 3.765 percent, according to Royal Bank of Scotland Group Plc prices on the Bloomberg.

Borrowing Overseas

Increased fundraising from overseas has helped pare borrowing costs, Kashyap said. Last fiscal year, the agency reduced its average borrowing cost to 7.6 percent from 7.7 percent a year earlier, he said. It raised a total 97.9 billion rupees in the period.

India is expanding railways to ease road traffic and pollution. The government wants rail to account for 50 percent of inland freight movements by 2020. Trains had a 35 percent share in 2009, according to the rail ministry.

Rail-freight traffic grew an average 7.2 percent in the six years ended March 2009, trailing economic expansion at an annual pace of 7.9 percent, according to the ministry.

--Editors: Vipin V. Nair, Neil Denslow

To contact the reporter on this story: Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net


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