From the role of anchor investors, the price of the IPO to how it will benefit the Indian Railways, here are five things to know about the Indian Railway Finance Corporation (IRFC) Initial Public Offering (IPO)
Amitabh Banerjee, chairman and managing director, Indian Railway Finance Corporation (IRFC) recently said that the IRFC Initial Public Offering (IPO) of around ₹4,600 crores will hit the markets by the end of December.
The IRFC IPO will see a sale of 178.21 crore equity shares, comprising a fresh issue of 118.80 crore equity shares, and an offer for sale of 59.4 crore equity shares by the Government of India, as per the draft prospectus.
IRFC is a Public Sector Undertaking (PSU) owned by the Government of India through the Ministry of Railways. The company is registered with the Reserve Bank of India under the category of an “Infrastructure Finance Company”.
The market listing of IRFC is historic as it will be the first IPO by a non-banking financial company (NBFC) in the public sector.
“In all probability, it will be by the third week but, if the market is not okay then we can go to the first or second week of January also….We are the first NBFC in the PSU sector that is going public for the first time and we shall be paving the way for others,” Amitabh told PressTrust of India.
Here are five facts to know:
How to apply?
Just like every other IPO, one can apply via the Applications Supported by Blocked Amount (ASBA) available in your bank. Other options include IPO forms.
The company shares are likely to be listed on Bombay Stock Exchange and National Stock Exchange of India.
Is IRFC IPO risk-free?
Amitabh told Business Today that the IRFC IPO is a risk-free business model, as all the lease rentals were integrated into the Union Budget.
“How much lease rentals are to be paid to IRFC are earmarked in the Budget, so these lease rentals make for assured revenues for us. It is more than the government guarantees. We don’t even have to invoke the guarantee because any default in the repayment of rentals will tantamount to sovereign default, which is unlikely,” he said.
Role of anchor investors
The concept of anchor investors was launched in 2009 by the Securities Boards and Exchange. These are institutional investors who are invited to invest before the IPO is listed for the public. Anchors purchase shares at a fixed rate to ensure steady demand for the shares and also instil confidence in the public.
The IRFC will also have anchor investors in place who will get the desired portion of issuance without bidding.
“They will be able to get the amount that they want to invest in IRFC without going for the bidding route. Also, it will give a lot of confidence to other investors in the market who are sitting on the fence,” Amitabh said.
Role of book running lead managers
IRFC collaborated with lead managers (merchant bankers or syndicate members) to decide the price or price band of an IPO on the basis of extensive market research and roadshows.
The lead managers also draft and design offer documents, prospectus, statutory advertisements and memorandum of the IPO.
The book running lead managers of IRFC are DAM Capital Advisors, HSBC Securities and Capital Markets, ICICI Securities and SBI Capital Markets.
How does IRFC benefit railways?
Indian Railway Finance Corporation (IRFC) was set up on 12 December 1986 as the dedicated financing arm of the Indian Railways for mobilising funds from domestic as well as overseas Capital Markets.
It is important to note here that even though the funds are raised for the railways, it cannot go directly to them. It means the acquired assets will be kept in IRFC’s books. The depreciation benefit on such assets will be leased to Indian Railways for a certain period. In return, the IRFC will get lease rentals on an annual basis.
The funds are also utilised to purchase rolling stock assets like locomotives, coaches, wagons, trucks, flats, electric multiple units, containers and so on.
To increase its net worth, 10 per cent of the IPO proceeds will go to IRFC’s balance sheet. This will help the firm raise more money from the market.
Amitabh adds that the IPO will further enhance the company’s value and bring in better corporate governance norms, “That will bring in more transparency in the working of the company,” he said.
Edited by Yoshita Rao