In an interesting development, the Initial Public Offering (IPO) of Indian Railway Finance Corporation (IRFC) has drawn in a 65% subscription on the first day of bidding. This follows the previous IPO held by the Indian Railway Catering and Tourism Corporation Ltd. on the National Stock Exchange in 2019.
Key Points of IRFC’s Initial Public Offering
The IPO marks the first public issue in the calendar year 2021, and is also the debut for a railway non-banking financial company. The Central Government, as IRFC’s promoter, plans to offload a 13.6% stake through this public offer. Priced at the higher band of Rs 26 per share, the government can expect to raise a hefty sum of Rs 3,243 crore. This would result in a market cap of Rs 23,845 crore for the company. One of the main objectives of this IPO is to enhance IRFC’s capital base and serve general corporate purposes.
Government Interventions for Railway Efficiency
This IPO isn’t the only initiative being undertaken to improve the efficiency of India’s railways. Strategies include the development of freight corridors, the introduction of high-speed railways, and the construction of elevated corridors.
Understanding the Indian Railway Finance Corporation
Established in 1986, the IRFC serves as a subsidiary and dedicated market borrowing arm of the Indian Railways. The corporation has adopted a financial leasing model to finance acquisitions of diverse rolling stock assets like locomotives, wagons, coaches, and more.
How Does the Finance Leasing Model Work?
The financial leasing model, from which IRFC generates revenue, involves three parties: the seller, the buyer (or lessee), and the financier (or lessor). Here, ownership of a particular asset is transferred from the seller to the lessor in exchange for payment. The lessee then enters into a contract with the lessor to use this asset, paying a fee periodically.
IRFC’s Role and Functions
The IRFC’s role extends beyond financing acquisitions. The corporation significantly contributes to the Indian Railways’ capacity enhancement by funding a majority of their annual plan outlay. This provides long-term business visibility. Additionally, it leases railway infrastructure assets, funds national projects of the Government of India, and lends to entities under the Ministry of Railways.
About Initial Public Offerings
An IPO is an opportunity for an unlisted company to issue new securities or offer its existing ones for sale publicly. This allows new and medium-sized firms seeking growth and expansion to raise necessary funds.
Benefits of an IPO
Besides generating capital for new equipment and infrastructure, an IPO opens up avenues for trading on the stock exchange. It can also draw top talent to the company as stock options can be offered to employees. This allows the company to keep initial wages low, with the promise of cashing out with the IPO.
Source: IE
Last Modified: February 10, 2024