IRFC raises funds at lower rates than sovereign bonds

MUMBAI : The Indian Railway Finance Corporation (IRFC), the financing arm of India’s railways, has raised funds over 20 years at 18 basis points less than what sovereign bonds offer. The public company has raised 1375 crore through 20 year bonds at 6.8%. In contrast, government paper maturing in 2041 offers an annualized return of around 6.90%.

“The aforementioned bond issue received a very good response from investors including long-term / ultra-long term investors, especially provident funds. The issue was six times oversubscribed from the base issue size of Rs500 crore, ”the company said in its statement.

Earlier this month, the IRFC canceled plans to raise funds in the bond market due to lack of demand. IRFC has an annual borrowing target greater than 1 trillion in the current fiscal year.

Generally, corporate bonds in the domestic market are liquid for a term of up to 10 years. This issue by IRFC could set a new benchmark yield curve for pricing similar issues in the future. With the current issue, the cumulative fundraising through the issuance of 20-year bonds on the national capital market during the current financial year has affected 13,970 crore.

However, banks have slowed down their investment in corporate bond issues due to rising bond yields. Data from the Reserve Bank of India (RBI) shows that banks have reduced their investments in corporate bonds and debentures over the past two months. Total investment in corporate bonds by banks fell to 5.64 trillion at the end of February, down 3.5% in two months. Since January, government bond yields have jumped 35%, and two-, three- and five-year corporate bond yields have climbed 50 to 100 basis points.

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