Japan loan: IRFC to raise $1.10 billion via yen-denominated offshore loan ahead of Japanese Prime Minister’s visit

Indian Railways Finance Corp (IRFC) is set to raise $1.1 billion (about 130 billion yen, or Rs 8,440 crore) through a syndicated yen-denominated offshore loan, three people close to ET have told folder.

Japanese lenders Mizuho Bank, MUFG and Sumitomo Mitsui Banking Corp (SMBC) are expected to sign an agreement for the loan around Japanese Prime Minister Fumio Kishida’s visit to India this week.

The proceeds would be used to fund Indian Railways’ green initiatives, such as electrifying its tracks and adding electric locomotives.

IRFC Director General Amitabh Banerjee confirmed the plan.

“The samples would take place at the appropriate time. Slices would be decided later,” he said in a text response to ET’s questions. “The syndication is expected to be completed in the first quarter of FY23.”

MUFG and SMBC did not respond to ET’s questions. Mizuho could not be contacted immediately.

The loan can be raised in two tranches: a $400 million loan over seven years and $700 million over 10 years, people in the know said.

“Many Indian companies have delayed their offshore fundraising due to escalating geopolitical tensions. It is now picking up again,” one said.

IRFC’s Banerjee, however, refused such a delay.

The loans will be priced after adding a spread, or mark-up, over the Tokyo Overnight Average Rate (TONA), a Japanese benchmark rate indicator, which gives a yield close to zero. Spreads should be between 98 and 110 basis points on two maturities.

In January, the Indian Railways financier mopped up $500 million via offshore bonds, marked as green. These have been listed at Gujarat International Finance Tec-City.

Indian Railways would work to become the largest green railway in the world. It aims to achieve the “net zero carbon emitter” label before 2030, in line with the government’s growing attention to the subject. The steps range from electrification, to conserving water and paper, and preventing animal injury on railway tracks.

Indian Railways has also drawn up a Rs 34,000 crore safety upgrade to its network which involves the deployment of an automatic train protection system called Kavach.

IRFC, as the official funder of the national carrier, should play a crucial role in funding these projects.

Meanwhile, India’s association with Japan is on the rise.

Since 2016, India’s exports to Japan have almost doubled, reaching $6.07 billion in 2021, according to data compiled by Bank of Baroda. Over the same period, imports increased by 46% to $14.4 billion.

Kishida will be the first world leader to visit India since the Russian invasion of Ukraine, ET reported on March 7. The annual summit would encourage new investments and provide an opportunity to give impetus to the bilateral partnership. The annual India-Japan summit is expected to stimulate new investment, giving new impetus to the bilateral partnership.

Indian entities are increasingly diversifying their funding sources. The country’s biggest lender, the State Bank of India, became the first local lender to sell “Formosa” bonds in Taiwan about six weeks ago.

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