Karnataka Power Plans Rs 200cr Bond Issue
The Karnataka Power Generation Corporation (KPGC) is planning to come out with a bonds issue, the size of which is expected to be about Rs 200 crore.
KPGC is trying to get government permission to make investors in this bond issue eligible for tax benefits under Section 88 of the Income Tax Act.
Up to 20 per cent of investments made in avenues listed under the Section 88 can be set off as a rebate against the tax payable by an individual.
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This exemption is, however, restricted to investments up to Rs 60,000 per year with an additional limit of Rs 10,000 earmarked for investments in infrastructure. "Karnataka Power Generation Corporation had borrowed some high-cost funds in the past. Some of these loans will be swapped with cheaper funds raised through the proposed bond issue," sources from merchant banking circles said.
Part of the proceeds of the bond issue will also be used to fund additional investments in power generation facilities.
By floating a public issue of bonds under Section 88, Karnataka Power Generation Corporation can offer an interest rate lower than the market rate, as the issue will have tax benefits, it is learnt.
The Konkan Railway Corporation had a few years back come out with a successful bond issue at a reasonably low interest rate, thanks to the tax benefits.
The Power Finance Corporation (PFC) is also drawing up plans to come out with an issue of bonds aggregating about Rs 600 crore. This issue is also expected to offer tax benefits under Section 88.
Sources from the merchant banking community active in raising debt funds for infrastructure projects feel there is a need for increasing the upper limit for investments under this section.
"Investments up to Rs 1 lakh should be allowed tax benefits under Section 88. Of this Rs 40,000 can be earmarked for investments in infrastructure,'' they argued.
Though the central government may lose some revenue, the move will help mobilise much-needed funds for infrastructure projects, according to sources.