LIC of India will invest up to Rs 26,000 crore this financial year in the Indian Railways Finance Corporation (IRFC). The cost of the 30-year money is just 30 basis points higher than the benchmark bond yield with a mechanism to reset the rate every 10 years.
A top government official told ET. For example, if the benchmark yield is at 7.90 percent, the cost comes to 8.20 percent semi-annually. The rate will be revised after 10 years in proportion to the prevalent sovereign gauge.
The official said, “IRFC will issue bonds to LIC to … meet its borrowing requirements. The cost of borrowing looks cheap compared to other market rates,”.
IRFC has set the borrowing target in 2018-19 as it plans to issue similar quantum bonds to LIC. The financial backer of the national carrier seeks to fund long-term projects availing a credit window mutually agreed with the LIC two-three years ago.
In March 2015, the railways inked an agreement with LIC, the largest domestic institutional investor, to receive funding assistance of Rs 1.5 lakh crore for railway projects over the next five years.
Later, in March, the ministry of financeNSE 0.52 % approved the government guarantee of Rs 5,000 crore for bonds to be issued by IRFC before the end of FY18. The process will continue for future issuances.
Under such a mammoth credit facility, IRFC enjoys certain relaxations. For example, there is a five-year moratorium for interest payment while for principal repayment, it is 10 years.