Indian Railway Finance Corporation Ltd.

Strictly Private and Confidential
Indian Railway Finance Corporation Ltd.
Investor Meeting – First Quarter 2015
1
Strictly Private and Confidential
Scheme of Presentation
2
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Company Overview
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Leasing Arrangements with the Ministry of
Railways (“MOR”)
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Financial Overview
Strictly Private and Confidential
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3
Company Overview
Strictly Private and Confidential
IRFC Overview
4
§
Indian Railway Finance Corporation Ltd. (“IRFC”) is a public limited company
under the Companies Act, 1956. It is the dedicated funding arm of the Ministry of
Railways (MoR), which is responsible for running the Railways. MoR relies heavily
on IRFC for its Extra Budgetary Resource needs to fund acquisition of its rolling
stock, and to a smaller extent, in a few other key areas. MoR is a strategically
important part and one of the Department of the Government and therefore 100%
owned by Government.
§
More than half of Indian Railways’ rolling stock fleet has so far been financed by
IRFC.
§
IRFC enjoys legal ownership of the rolling stock assets, which are leased to MoR
for a period of 30 years on Financial Lease terms. MoR effectively uses and
maintains them throughout their life.
§
The lease period is typically 30 years, comprising a primary component of 15 years
followed by a secondary period of 15 years. Full recovery of principal and interest
is effected during the primary lease period itself. After 30 years, assets may be
sold to the MoR for a nominal price
Strictly Private and Confidential
IRFC Overview – Contd.
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5
An arrangement exists for IRFC’s debt payments being committed by
the MoR in case of difficulties experienced by the company, However,
in its almost 27 year history since inception, IRFC has never had to
resort to MoR’s extraordinary support for meeting its debt obligations.
Through successful execution of its mandate to arrange lease finance
for MoR year-after-year, IRFC has been able to establish a
respectable niche franchise and has managed to sustain a strong
financial performance track record.
Strictly Private and Confidential
Unique Character of IRFC
6
§
In addition to IRFC being fully owned by the Government through the MoR, its
business is predominantly with the MoR, which remains its major client.
§
The business of IRFC is critical to MoR as the company funds a significant
portion of its capital investment in infrastructure needs.
§
Not only does the annual borrowing target of IRFC carry approval of the
Parliament of India but also MoR’s debt servicing obligation is committed by the
Parliament each year.
§
The Government has high stakes in good health of IRFC’s business and has
been extending all necessary support to it. The Government would require the
Company to steer its business operations entirely consistent with its obligations
towards MOR.
Organizational Structure
Strictly Private and Confidential
Board of Directors
Board of Directors
Chairman
Chairman
(R. Sivadasan)
Managing
Director
Managing Director
Kashyap)
((R.
Rajiv
Datt )
Director Finance
Director
Finance
(vacant)
( D C Arya )
G.M.(TL)
G.M.
(Bonds) &
& Co.
Co. Secretary
Secy
G.M.
G.M.
(ECB)
(ECB)
Other Executives
&
Staff
7
G.M.
G.M.
(Bonds)
(Accounts)
G.M. (F&A)
Strictly Private and Confidential
Board of Directors
8
§
IRFC’s Board comprises a sound mix of professional expertise and
experience.
§
Apart from the Chairman who is Financial Commissioner (Railways), and two
functional Directors, the Board of Directors also includes one nominee Director
from Ministry of Finance and two Independent Directors who are eminent
experts in relevant areas.
§
The Company follows all applicable Corporate Governance Practices as
prescribed by the Department of Public Enterprises (DPE) for all the Central
Public Sector Enterprises (CPSEs), both in the form of mandatory
requirements and voluntary guidelines.
Strictly Private and Confidential
Relationship with the Government of India
9
§
IRFC’s share capital has been wholly provided by the Government of India.
§
Under the Companies Act, 2013 of India, IRFC is a "Government Company", since
not less than 51% of the paid-up share capital of IRFC is held by the Central
Government.
§
Market borrowings to be done by IRFC each year and the payment of lease rentals
by MoR to IRFC, form part of the Railway Budget which is approved by the
Parliament of India.
§
MoR considers IRFC as of high strategic importance for its critical role in capital
formation in Railways.
§
Supporting such an understanding is the fact that MoR infused additional equity of
Rs.2.68 Billion, Rs.3 Billion, Rs. 2.91 Billion, Rs.5.11 Billion, Rs.5 Billion, 2.5 Billion
and Rs.6 Billion in March 2007, March 2009, December 2009, October 2010,
January/March 2012 and March 2013 respectively. During the year 2013-14, a
further sum of about Rs. 6.32 Billion stands received towards additional infusion.
§
The Chairman of IRFC is an official of the MoR. Traditionally, the Financial
Commissioner of the MoR has been the Chairman of the Company.
§
Managing Director and Director Finance are professionals with vast experience
including Railways & Corporate Sector
Strictly Private and Confidential
Control of Various Regulators
10
§
IRFC is a Public Financial Institution under Section 2(72) of the Companies
Act, 2013.
§
As a Government Undertaking, it is subject to guidelines of Department of
Public Enterprises.
§
Accounts of IRFC are subject to audit by the Supreme Audit agency set up
under the Constitution - Comptroller & Auditor General (C & AG) of India.
Besides, C & AG also undertakes propriety Audit of the company which is a
valuable means of prudent external review of its business.
§
Being a regular issuer of bonds in the domestic Capital Market, the Company
is required to comply with the guidelines issued by the Securities Exchange
Board of India (SEBI).
§
RBI approves IRFC’s proposals for borrowings from Overseas Market, and
exercises control as it deems fit for Public Financial Institutions - such as
IRFC.
Strictly Private and Confidential
IRFC – Highlights of Performance
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§
IRFC has acquired position of considerable repute amongst financial
institutions and is the only such institution in the Railway Sector.
§
IRFC has funded acquisition of assets valued at Rs. 1122.66 Bn. (USD 18.71
Bn.) for MOR till end of March 2014 which is expected to reach a level of Rs.
1260.66 Bn. (USD 21.01 Bn.) at the end of the financial year 2014-15 and to
Rs.1,398.66 Bn. (USD 23.31 Bn.) at the end of 2015-16 .
§
The Company has been consistently paying dividend to its Shareholders and
has so far paid Rs.18.68 Billion (USD 311.33 Mio) on an equity base of
Rs.2.32 Billion (USD 38.67 Mio) up to Feb. 2007 since inception, which was
enhanced to Rs. 5 Billion (USD 83.33 Mio) in March’2007; to Rs.8 Billion
(USD 133.33 Mio) in March’2009; to Rs.10.91 Billion (USD 181.83) in
December 2009; to Rs.16.02 Billion (USD 267 Mio) in October 2010; to
Rs.21.02 Billion (USD 350 Mio) in January 2012; to Rs.23.52 Billion (USD
392 Mio) in March 2012; to Rs.29.52 Billion ( USD 492 Mio), and further to
Rs.35.84 Billion ( USD 597.33 Mio)
§
Affairs of the Company are carried out by a lean team which has just 19
personnel. Overhead to Turnover ratio is 0.12%, which is perhaps the lowest
for any company the world over.
Strictly Private and Confidential
IRFC – Highlights of Performance (contd.)
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§
Besides enjoying the highest possible credit rating for its operations in
domestic market and rating identical to the Country rating for its overseas
borrowings, IRFC has been rated “Excellent” by the Government of India on
thirteen occasions, based on its performance in the last fourteen years. It
ranked amongst Top Ten PSUs based on its performance during 2001-02,
2002-03, 2003-04 and 2004-05.
§
IRFC has been successfully funding a significant part of Plan Fund
requirements of MoR over the years at competitive rates. Cost of the funds
raised by the company during recent years compares well with cost of
borrowing of Government of India.
Strictly Private and Confidential
Total Plan outlay of Railways & IRFC’s Share
593590
138000
149420
151420
450610
147900
97800
407930
407450
93880
363360
72338
47320
189760
38110
154220
29570
133940
27270
114080
25100
101770
21670
93950
28230
90570
28490
29500
88570
82390
24780
100000
16620
200000
83100
300000
234750
400000
48490
289800
500000
503830
700000
600000
643050
(Rs. Million)
2014-15 (BE)
2012-13
2011-12
2010-11
2009-10
2008-09
2007-08
2005-06
2006-07
IRFC's Share
2013-14 (RE)
Total Plan Outlay of Indian Railways
2004-05
2003-04
2002-03
2001-02
2000-01
1999-00
1998-99
1997-98
1996-97
0
Total Plan Outlay of IR during the year 1996-97 to 2014-15: Rs. 5,054.74 Bn. ( USD 84.24 Bn. )
Funding by IRFC during the period 1996-97 to 2013-14
: Rs.1,216.41 Bn. ( USD 20.27 Bn. )
Share of IRFC in Total Plan Outlay
: 24.07%
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Strictly Private and Confidential
Credit Ratings
§
IRFC maintains the highest possible ratings for an Indian issuer, reflecting its
sound financials and special status as a wholly-Government owned Public
Financial Institution:
Foreign Currency
Issuer Rating
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Outlook
Moody's
Baa3
Stable
Standard and Poor’s
BBB-
Negative
Fitch
BBB-
Stable
Japanese Credit Rating Agency
BBB+
Negative
Domestic
Rating
Outlook
CRISIL
AAA
Stable
ICRA
(ICRA)AAA
Stable
CARE
AAA
Stable
Strictly Private and Confidential
n
15
Leasing Arrangements with the
Ministry of Railways (“MoR”)
Strictly Private and Confidential
Leasing Activity
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§
As lessor, IRFC retains legal title to the assets leased under the terms of the
Standard Lease Agreement with MoR. This allows the company to obtain
depreciation benefit under the tax law.
§
The lease period is typically 30 years, comprising a primary component of 15 years
followed by a secondary period of 15 years. Full recovery of principal and interest is
effected during the primary lease period itself. After 30 years, assets may be sold to
the MoR for a nominal price.
§
Each year, IRFC enters into a Standard Lease Agreement with MoR through which
lease rental in respect of assets acquired during the year is fixed. The IRR of the
lease includes a moderate mutually agreed mark-up over the average borrowing
cost of the company relevant to incremental assets acquired during the financial
year.
§
IRFC runs essentially a risk free business, with foreign currency risk and interest
rate risk associated with its borrowings either transferred to MOR or hedged at
MOR’s cost.
Strictly Private and Confidential
Lease Receivables
§ IRFC’s cash flows from lease rentals are robust and stable, as evidenced by the
table below. Outstanding leased assets1 are valued at INR 745.04 Billion (USD
12.41 Billion) on March 31, 2014. Gross value2 was INR 1064.11 Billion (USD
17.74 Billion).
Year
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
2021-22
2022-23
After 1 April 2023
Total
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INRBillion
108.51
105.77
103.27
101.35
98.60
95.52
91.86
87.23
82.48
269.78
1,144.37
USDBillion
2.00
1.95
1.90
1.86
1.81
1.76
1.69
1.60
1.52
4.96
21.05
1. Outstanding leased assets ( i.e. receivables ) depict the gross value net of capital
recovery already effected on such leased assets
2. Gross value is the original value / purchased cost of the assets leased, and excludes
the value of Rs.19.70 Bn and Rs.38.80 Bn representing the assets taken on lease for
subleasing to MOR and assets pertaining to the Securitization transaction
respectively. ( i.e. 1064.11 + 19.70 + 38.80 = 1122.61 Billion)
Strictly Private and Confidential
Assets Leased to MoR and Lease Rentals Received
Rs Million
1,200,000
1,000,000
Line
800,000
600,000
400,000
200,000
0
Assets Given on Lease
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Lease Rentals from MOR
Strictly Private and Confidential
Asset Creation by IRFC and Cost-Benefit to MoR
80.00%
70.00%
66.77%
64.91%
60.00%
50.28% 51.40%
50.00%
52.70%53.56%
55.16%
56.65%
56.68%
46.43% 46.11%
43.64%
40.72%
40.00%
36.61%
30.00%
20.00%
10.00%
7.13% 7.88%
7.78%
7.35%
7.04% 7.05%
6.08%
5.73%
5.34% 5.92%
6.18%
7.44%
6.66% 7.40%
0.00%
Share of Rolling stock assets financed by IRFC
19
Share of Lease Rentals in GTR
Strictly Private and Confidential
IRFC Share in Indian Railways Rolling Stock
Position as on 31-03-2014
§ More than half of Indian Railways’ rolling stock fleet stands financed by IRFC.
Units
Rs. Billion
497.20
7,289
Particulars
Locomotives
Locos-Electric
3,794
5,327
Locos-Diesel
3,495
6,475
Passenger Coaches
Freight Wagons
41,432
306.80
1,85,362
315.06
Cranes and Track Machines
85
Total
3.60
1122.66
41,432
54,432
Coaches
1,85,362
Wagons
2,78,612
0
50000
100000
IRFC's Share
20
150000
200000
IR Rolling Stock
250000
300000
Strictly Private and Confidential
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Financial Overview
Strictly Private and Confidential
Sources of Finance
§
IRFC’s principal sources of funding are borrowings through issue of
bonds, term loans & external borrowings, besides sums which are
generated internally :
As on 31 March, 2014
(INR Billion )
Equity & Free
Reserves
75.62,
9%
22
Deferred Tax
Liability
42.12
5%
Term Loans
26.51
3%
Tax Free Bonds
261.73
Total : Rs. 808.62 Billion (USD 13.47 Billion)
33%
External
Commercial
Borrowings
165.25
21%
Taxable Bonds
237.39
29%
Strictly Private and Confidential
Summary of Key Financial Indicators
For the year ended
2014
2013
INR
Million
2012
INR
Million
2011
INR
Million
2010
INR
Million
2009
INR
Million
INR
Million
1033.04
61982.62
55515.45
46431.09
38416.52
34839.37
30247.81
Total Expenditure
771.04
46262.35
40973.77
36297.33
29433.07
26955.28
23670.94
Profit Before Tax
262.00
15720.27
14541.68
10131.89
8983.45
7882.86
6576.87
Net Profit After
Current Tax
207.07
12424.42
11619.06
8097.60
7196.14
6531.61
5827.10
Net Profit After Tax
*
116.78
7006.91
5215.66
4807.82
4852.04
4426.91
1807.92
Share Capital
597.33
35839.60
29520.00
23520.00
16020.00
10910.00
8000.00
1365.04
81902.15
71130.34
60789.36
53853.98
47815.02
42372.57
Total Loans
11514.73
690883.52
587529.76
502512.60
381244.76
336085.75
273887.10
Total Balance Sheet
Size@
13988.34
839300.20
707550.45
605892.88
466902.20
406641.00
334113.30
31 March
Total Income
Reserves & Surplus
(Incld. DTL) *
23
2014
USD
Million
* IRFC has decided to provide for Deferred Tax liability in line with AS-22 from fiscal 2004-05.
@ In compliance with statutory requirement, 2011-12 accounts drawn as per Schedule VI of
the Indian Companies Act 1956 as amended. Previous years numbers have been realigned
to make them comparable to 2012 numbers.
Strictly Private and Confidential
Hedging Strategies - Prudent use of Financial
Derivatives
§ IRFC follows the practice to appropriately hedge exchange rate and interest rate
risks on its forex debt portfolio.
§ The Principal amount outstanding against the External commercial borrowings
involving bullet repayment at the end of 5/10 years is hedged through suitable
derivative products at an opportune time, over the life of such borrowings.
§ For Interest servicing in respect of External Commercial Borrowings and
repayment of principal amount against overseas borrowings with amortized
repayment structure, hedging philosophy generally followed is not to contract
derivative products, mainly because such amortized structures offers a natural
hedge.
§ Interest rate swaps are contracted selectively on merits.
§ Derivatives are prudently used as a tool for hedging the Forex and Interest Rate
Exposure.
§ Derivatives are also used as a mechanism for structuring financial products to
achieve low cost funding.
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Strictly Private and Confidential
Prudent use of Financial Derivatives (contd.)
§ Philosophy behind contracting derivative transactions is to optimally contain the
financial risks and achieve low cost funding without exposing the company to
undue risk.
§ Timing is of essence, and it is IRFC’s experience that selecting the right time
for a derivative transaction can have very significant bearing on cost.
§ Exotic and Complex derivative structures are avoided.
§ Derivative portfolio is constantly monitored and the company keeps in
preparedness to ‘exit’ from the derivatives if the conditions are expected to
become grossly unfavorable.
§ Decisions about timing, quantum of hedging and structure of hedge products
are preceded by constant monitoring of macro economic factors, financial
market movements and meticulous cost-benefit analysis. Expert external
advice is also sought.
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Strictly Private and Confidential
Achievement of objective
IRFC has been admirably discharging its responsibility as efficient funding arm of
Railways.
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
26
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14
Margin to IRFC
0.55%
0.53%
0.52%
0.51%
0.51%
0.50%
0.50%
0.50%
0.50%
Cost to IRFC
7.00%
8.22%
9.33%
8.98%
7.70%
7.62%
8.73%
8.12%
7.89%
Cost to MOR
7.55%
8.75%
9.85%
9.49%
8.21%
8.12%
9.23%
8.62%
8.39%
Cost to AAA Rated Entities
7.98%
9.06%
9.62%
9.72%
8.60%
8.57%
9.29%
9.10%
9.22%
Cost of Borrowing of GOI
7.34%
7.89%
8.12%
7.56%
7.23%
7.85%
8.39%
8.23%
9.05%
Strictly Private and Confidential
n This presentation carry USD/INR
exchange rate at Rs.60 to one
USD
Thank You
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