Indian Railway Finance Corporation IPO: Opens tomorrow: Key details an investor should know before subscribing

State-owned Indian Railway Finance Corporation's (IRFC) initial public offering (IPO) is scheduled to open for subscription on Monday, January 19, 2021. The subscription will close on January 20, 2021.

The IPO of IRFC will be the first IPO in 2021.

The price band of the issue has been fixed at Rs 25 to Rs 26 per Equity Share. Investors can make bids for a minimum of 575 equity shares and in multiples of 575 equity shares thereafter.

The company seeks to raise up to Rs 4,633.38 crore from the issue. The company already garnered Rs 1,390 crore through anchor book on last Friday.

The net proceeds from its fresh issue are proposed to be used for augmenting equity capital base to meet the capital requirements arising of growth in the business in the future as well as for general corporate purposes. The proceeds of the offer for sale will be received by the selling shareholder i.e. the Government of India only and hence, the company will not receive any proceeds from the offer for sale.

The subsidiary of the Indian Railways will launch an initial public offering of up to 1,782,069,000 equity shares of the face value of Rs 10 each. The initial public offering comprises of a fresh issue of up to 1,188,046,000 Equity Shares ("Fresh Issue") and an offer for sale of up to 594,023,000 Equity Shares by the President of India, acting through the Ministry of Railways ("Selling Shareholder") ("Offer For Sale").

The issue includes a reservation of equity shares aggregating to Rs 50 lakh for subscription by eligible employees. The issue will constitute up to 13.64 per cent of the post-issue paid-up equity share capital of the company.

DAM Capital Advisors, HSBC Securities and Capital Markets (India), ICICI Securities and SBI Capital Markets are the books running lead managers to the issue. The Equity Shares offered in the Issue are proposed to be listed at BSE Limited ("BSE") and the National Stock Exchange of India Limited ("NSE").

Company's Profile

IRFC set up on December 12, 1986, is the dedicated market borrowing arm of the Indian Railways for mobilizing funds from domestic as well as overseas Capital Markets. It is a Schedule 'A' Public Sector Enterprise under the administrative control of the Ministry of Railways. It is also registered as Systemically Important Non–Deposit taking Non-Banking Financial Company (NBFC – ND-SI) and Infrastructure Finance Company (NBFC- IFC) with Reserve Bank of India (RBI).

Its primary business is financing the acquisition of rolling stock assets (trucks, wagons etc), leasing of railway infrastructure assets and national projects of the Government of India (collectively, "Project Assets") and lending to other entities under the MoR (Ministry of Railways). The period of the lease with respect to Rolling Stock Assets is typically 30 years comprising a primary period of 15 years followed by a secondary period of 15 years.

It is wholly-owned by the Government of India acting through the MoR. In FY 2018, 2019 and 2020, it was responsible for financing 93 per cent, 84 per cent and 76 per cent, respectively, of the rolling stock purchased by it and leased to the MoR.

Competitive Strengths

Strategic role in financing growth of Indian Railways: In FY 2020, IRFC financed Rs 713.92 billion accounting for 48.22 per cent of the actual capital expenditure of the Indian Railways.

Competitive cost of borrowings based on strong credit ratings in India and diversified sources of funding: It has received the highest credit ratings from CRISIL - CRISIL AAA and CRISIL A1+, ICRA - ICRA AAA and ICRA A1+ and has diversified sources of funding like taxable and tax-free bonds issuances, term loans from banks/financial institutions etc.

Consistent financial performance and cost-plus model: Its total revenue from operations increased by 19.33 per cent from Rs 92,078.39 million in FY 2018 to Rs 1,09,873.55 million in FY 2019 and by 22.15 per cent to Rs 134,210.90 million in FY 2020.

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