NEW DELHI, India - The Indian government is borrowing $750 million equivalent in Indian Rupees, in what will be the largest single nonsovereign loan ever committed by Asian Development Bank (ADB).
The funds will be provided to the Indian Railway Finance Corporation (IRFC) to fund the Railways Track Electrification Project, as part of a broad modernization program that will help India's railway sector transition to electric power and away from dependence on fossil fuels.
Concurrently with the loan agreement signing, risk participation agreements were signed with private risk participants for the project.
IRFC, an entity owned by the government of India, will use the proceeds from the loan to install electric traction equipment along approximately 3,378 kilometers of existing railway lines, which will enable the migration of passenger and freight traffic from diesel to electric traction. The electrification assets will be leased to Indian Railways, the country's national railway system, under a long-term lease agreement.
"This is a flagship project demonstrating ADB's strategy of supporting key state-owned enterprises in strategic sectors," ADB Vice-President for Private Sector Operations and PublicPrivate Partnerships Mr. Diwakar Gupta said Wednesday. "It also reflects a major push by the private sector operations of ADB into transport infrastructure, and particularly railways, a sub-sector in which traditionally such operations have not contributed a great deal."
"ADB is adding value in this transaction by providing and mobilizing long-term, non-recourse project financing for critical infrastructure development," the Director General of ADB's Private Sector Operations Department Mr. Michael Barrow said Wednesday. "A significant value addition is the mobilization of private capital through risk participations with the private sector. As the aggregate funding requirement of Indian Railways is quite substantial, ADB is partnering with it to help tap into a diverse set of funding sources."
The government of India has placed significant emphasis on investing in infrastructure, and has developed a 5-year, $132 billion capital expenditure program for the modernization of Indian Railways. The program comprises network expansion and decongestion; enhancement of safety and passenger amenities; development of dedicated freight corridors; station redevelopment; and procurement of rolling stock and other related assets. The electrification of railway tracks is part of this master plan, which is critical for the movement of goods and people within the country.
IRFC was set up in 1986 as the financing arm of Indian Railways for mobilizing funds from domestic and international capital markets. It is fully owned by the government and is registered as a nonbanking finance company. IRFC's principal business is to raise funds from the financial markets to finance the acquisition or creation of assets which are then leased out to Indian Railways. IRFC is rated BBB by S&P Global Ratings and Fitch Ratings, Baa2 by Moody's Investors Service, which are at par with India's sovereign rating.