PFC to issue infra bonds of Rs 1,000 cr by December-end

State-run Power Finance Corporation (PFC) will start issuing infrastructure bonds to retail investors by December-end. It is awaiting some clarifications from the Ministry of Finance and the Reserve Bank of India (RBI) before finalising the issue size.

A senior executive said the company wanted to raise more than Rs 1,000 crore through bonds. It is in discussion with the ministry for approving the final size. Subscribing investors will be eligible for income tax exemption up to Rs 20,000 a year under the recently introduced section 80CCF of the Income Tax Act.

RBI had granted the power financier infrastructure financing company (IFC) status last month. “The IFC status will allow us to issue infrastructure bonds, but since we are a non-deposit undertaking, we will have to seek a clarification from RBI on the issuance of bonds,” said the executive.

PFC is a non-banking financial company that provides loans for various power projects in generation, transmission and distribution sectors, as well as for renovation & modernisation (R&M) of existing power projects. It was earlier classified as a loan company.

It is raising money through both debt and equity routes to meet its funding requirement. It has also started negotiations with peers in the power sector to float a bank (which would enable it to access cheaper funds).

Issuance of infrastructure bonds would allow the company to get a cost advantage of 50-60 basis points and help in reducing borrowing cost.

Besides, PFC would also be raising fresh equity through a follow-on public offer or qualified institutional placement in the next six months. The Cabinet approval for raising fresh equity is expected to come soon. The company’s board has already approved a proposal for a fresh issue of equity shares, along with disinvestment not exceeding an aggregate of 20 per cent of the existing paid-up share capital of the company, subject to approvals.

Currently, the government holds 89.78 per cent in PFC. It had divested 10 per cent stake through an initial public offer in 2007.

On the debt side, PFC will be raising $260 million from external commercial borrowings this financial year. The company conducted road shows in Japan and China to raise an additional $240 million through foreign loans. In March this year, PFC had raised $300 million from State Bank of India’s London branch.