REC bond issue in third week of December

Rural Electrification Corporation (REC) plans to raise at least Rs 1,000 crore through a tax-saving bonds issue in the third week of December, with an option to raise more in case of oversubscription. The investors can subscribe for the bonds till March.

The power sector lender would issue tax-saving bonds for the first time this financial year. "We would be opening the issue within three to four days from now. We should be able to raise at least Rs 1,000 crore through the issue. However, we have not set any upper limit in case of over-subscription," H D Khunteta, finance director at REC, told Business Standard. REC was scheduled to come out with the issue in November. However, it was delayed due to market volatility.

Like other infrastructure financing companies, REC would also offer a coupon rate of nine per cent per year on these bonds. It would keep the issue open till March, instead of an issuance in tranches. IDFC and L&T Infra have also come out with tax-savings bonds, and both offer a coupon rate of nine per cent. The coupon rate on tax -saving infrastructure bonds are closely linked to the closing yield of benchmark government securities in the previous month. Earlier, REC had told Business Standard it would be looking to raise funds through tax-saving bonds in three tranches.

"People start their tax-planning from the last quarter of the financial year, and the major tax-saving activities happen at the end of the financial year," Khunteta said. The company had, therefore, kept the issue open for long, he added. The tenor of the bonds would be 10 years. An investment of up to Rs 20,000 is eligible for individual tax deductions under section 80CCF of the Income Tax Act. This is above the normal tax exemption limit of Rs 1 lakh.

The power sector lender has raised about Rs 19,000 crore this financial year through various sources, compared with its target of Rs 30,000 crore. "We can raise up to Rs 6,000 crore through tax-saving bonds. However, the market for these is still not big, and is still evolving," Khunteta said. An infrastructure finance company can raise up to 25 per cent of its total disbursals. After the Reserve Bank of India had hinted at a reversal of the rate rise regime, government bond yields have been coming off, and this is likely to boost the domestic bond market.