REC to raise Rs 3,500 cr via tax-free bonds

Issue opens Friday, closes on September 23; issue open for subscription in 2 tenures - 10 years, 15 years, 20 years

The Rural Electrification Corporation (REC) is coming out with the first tax-free bond issuance of this financial year. Through this route, REC plans to raise Rs 1,000 crore, with an oversubscription option of Rs 2,500 crore.

The issue opens on Friday and closes on September 23. It is open for subscription in three tenures – 10 years, 15 years and 20 years.

The tax-free coupon rate on these bonds will be between 8.01 per cent, 8.46 per cent and 8.37 per cent for 10 years, 15 years and 20 years, respectively. Retail investors will be offered the bonds at 8.26 per cent, 8.71 per cent and 8.62 per cent, for 10 years, 15 years and 20 years, respectively. The issue will have a 40 per cent reservation for retail investors and 20 per cent each for high-networth individuals, companies and qualified institutional buyers.

“The private placement we did, at the same interest rates, was oversubscribed and hence we expect good response to the tax-free bonds issue as well,” said Rajeev Sharma, chairman and managing director of REC. Since REC’s issue is the first for the year, he expects to have the first-mover advantage, too. REC is looking to raise Rs 37,000 crore this year, Sharma added.

According to Sharma, for the investors in the high-income tax bracket, the effective yield comes to 12.44 per cent. REC will use the capital raised through bonds for lending purposes.

Sharma added that the company’s financial position is strong and only two projects funded by it, including the Maheshwar Hydroelectric project in Madhya Pradesh, have become non-performing assets. The Maheshwar project has been stalled for a long time.  All state power utilities are regularly paying their dues, said Sharma.

The lead managers to the issue are ICICI Securities, A K Capital Services, Axis Capital and Edelweiss Financial Services.