Moody's Investors Service has assigned a Baa3 rating to the proposed USD benchmark senior unsecured notes to be issued by Indian Railway Finance Corporation (IRFC, Baa3). The rating outlook is stable.

The proposed notes are expected to have a 5-year maturity and will be listed on the Singapore Stock Exchange.

The net proceeds of the issue will be used to finance the purchases of rolling stock such as locomotives and wagons, which will be leased to India's Ministry of Railways.

The Baa3 rating is derived from IRFC's Baa3 long-term foreign currency issuer rating, as the notes will constitute the senior unsecured obligations of IRFC and will rank pari passu among themselves and equally with the company's other senior debt.

Consequently, the notes are rated at the same level as IRFC's foreign currency issuer rating, which in turn shares the same rating as the Government of India's (Baa3, stable) foreign currency bond rating.

The rating outlook for the proposed notes is in line with the rating outlook on India's sovereign debt.

IRFC's rating is derived primarily from the company's close linkage to the government, as it is the exclusive borrowing arm of the Ministry of Railway. IRFC raises funds for capital investment in India's railway infrastructure, which it then leases to the ministry.

The company operates under the administrative control of MOR, and although it legally owns nearly 60% of the rolling stock fleet used on India's government-owned railways system, the ministry retains the purchasing authority for such assets, as well as the responsibility for the operation and maintenance of the rolling stock. The ministry's responsibility includes complete liability for accidents, injuries, and other related issues.

We have determined that the IRFC's credit profile is inseparable from the government's own credit profile, given the control exercised by MOR over both IRFC and its assets. Government policies and the level of support provided by the ministry are, therefore, the main factors determining IRFC's funding costs, the growth in its profitability and, ultimately, its overall credit quality.

The rating also reflects the company's strong capitalization, consistent track record of profitability, impeccable asset quality, and the challenges emanating from its dependence on wholesale funding.