Indian Railway Finance Corporation (NSE: IRFC) shares are up 17% today. This continues the recent run, up 44% over the past month for IRFC shares. All of which could be considered a little odd as the government is considering selling a fairly substantial stake in the business. Normally more shares coming to market means a lower price - supply and demand does, in fact, matter even with financial instruments. So, there’s a certain difficulty in working out precisely what is happening here.
As to what IRFC actually does: “The company's principal business is to borrow funds from financial markets to finance the acquisition/creation of rolling stock / project assets, which are then leased out to the Indian Railways as a finance lease. IRFC is a Schedule ‘A’ Public Sector Enterprise under the administrative control of the Ministry of Railways (MoR).” So, for British investors, this is something like the rolling stock companies. Raise money on the markets - similar in a way to Fannie Mae and Freddie Mac with mortgages if we like, government guaranteed but formally operationally independent - which are then translated into operating leases to the railways.
This is, obviously, a big business. The Indian Railways are usually considered one of the two largest human organisations on the planet (the other being the Chinese armed forces). We’ve also looked before at IRFC: “However, it's worth having a look at the background here. The Indian Railways are really an arm of government. As well as being the country's largest employer. The two go together - the Indian railways are grossly inefficient. IRFC is a part of this system - the government owns 86% of the shares. IRFC was set up in order to bring some size and efficiency to the financing of the railway system. By having the one centralised body dealing with bond and equity markets perhaps it would be possible to have more efficient financing? The reason for an issuance of stock in such a body is to provide visibility on that efficiency. A public company - publicly quoted that is - has to prepare accounts on a more open basis than government itself does.”
Indian Railway Finance Corporation shares from Google Finance
As to why the recent rise, there is that thought that government will sell off a further piece of the company. Actual announcements, or rumours, of sales seem to lead to drops in the share price. But actually having 25% of the stock out there in the markets would increase the pressure to be running upon entirely commercial lines. It could be this boosting the IRFC share price - less government ownership leading to the company running less like government.
