S&P Rates Indian Railway Finance Corp For Curr BB+/B.

MELBOURNE, Australia--(BUSINESS WIRE)--Standard & Poor's CreditWire 7/7/98--Standard & Poor's today assigned its double-'B'-plus long-term and single-'B' short-term foreign currency ratings to Indian Railway Finance Corp. (IRFC). The foreign currency rating outlook is negative. Standard & Poor's also assigned its triple-'B' long-term and 'A-3' short-term local currency ratings to IRFC. The local currency rating outlook is stable.

The ratings on IRFC reflect the underlying support given by the Ministry of Railways (MoR) for IRFC debt servicing through a letter of comfort on all IRFC borrowings. The sound credit quality of its only client, Indian Railways (IR), also supports the ratings, as does the sound business-risk profile of IRFC.

All IRFC borrowings are covered by a letter of comfort from the MoR. In the event where IRFC does not have sufficient funds to meet any of its debt obligations, MoR undertakes to make funds available in advance to IRFC to ensure timely payments of all its liabilities. If IRFC's cash flow forecasts at the beginning of the year showed debt-servicing cost estimates to be greater than revenue flows, IRFC asks MoR to include the shortfall in its budget.

IR is the world's largest corporation by employee numbers (1.6 million in fiscal 1996), and historically has been viewed by the Indian government as crucial to the country's development to the degree that its budget is presented to the parliament two days before the national budget. IR has a solid business base, with the majority of its revenue coming from the haulage of raw commodities for which there is little competition. IR has a solid financial profile, with a history of consistent gross profits being posted and high funds flow from operations (FFO). Moreover, IR's net profit after tax has grown constantly since fiscal 1987, reaching Indian rupee (Rs) 41,350 in fiscal 1996. IR's ability to cover lease payments to the IRFC is strong, with FFO net interest (lease) coverage ratios at about 7 times (x)-9x over the fiscal 1994-1996 period.

IRFC's business-risk profile is sound, as it has no competition, and it finances projects that have a short gestation period. IRFC has a sound capital funds-to-risk-weighted assets ratio, which was 11.2% at Sept. 30, 1997-above the minimum 10% required by the Reserve Bank of India for nonbank financial intermediaries.

OUTLOOK (FOREIGN CURRENCY): Negative.

The foreign currency rating outlook reflects the negative foreign currency outlook on the Republic of India.

OUTLOOK (LOCAL CURRENCY): Stable.

IRFC is expected to retain its critical role in the Indian government's expansion plans for IR, and the consequential acceleration in rolling stock purchases. IRFC's credit quality will be contingent on the continued underlying debt-servicing support from the letter of comfort provided by the MoR to the IRFC, Standard & Poor's said. -- CreditWire

    CONTACT: Mark Legge, Melbourne (61) 3-9250-4564
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