Rec Bonds Get Aaa (So) From Icra
The Rs 225-crore tax-free bonds and the Rs 275-crore taxable bonds of Rural Electrification Corporation Ltd (REC) have been assigned Triple A (SO) by Icra.
The rating which indicates highest safety takes into account the letter of comfort from Ministry of power in ensuring that all repayment obligations of REC are met in a timely manner. Icra has said that its rating reflects REC's sovereign ownership and its nodal and catalytic role in implementing government's policy in rural electrification programme.
REC Ltd was incorporated in 1969 as a wholly owned government undertaking to exclusively fund the electrification programme in electrification, pumpset energisation, systems improvement and energy conservation. It also extends grants under the Kutir Jyoti programme to provide single point light targets as reflected by 85 per cent of India's villages getting electrified and nearly 118 lakh pumpsets or about 81 per cent of the total ground water potential of the country being energised as on Match 31, 1998.
REC has an outstanding loan of nearly Rs 6700 crore against lending to different SEBs.
as of end March 1998. The social nature of the schemes makes these loans unremunerative. This coupled with low credit quality of borrowers has resulted in piling debtors for REC.
The company was able to recover part of it under central appropriation during 1997-98. REC has also initiated steps to reschedule its loans with defaulting SEBs to improve its collections. Additionally, the company also reduced disbursements to defaulting state utilities.
REC's disbursement have grown at CAGR of almost 18 per cent during the last five years. The assets base has increased at CAGR of eight per cent during the same period. The growth has been funded through government of India (GoI) funds in form of equity and loans.
REC has also raised tax free bonds secured against SEB receivable and SLR bonds guaranteed by GoI. The GOI's funding which constituted more than 70 per cent of total borrowings has resulted in low cost of borrowing.
Although the cost of funds is low, REC was unable to make substantial spreads due to high debtor levels and social objective of confessional lending to economically weaker sections in rural India.