State-run Power Finance Corp (PFC) is likely to launch its maiden 54 EC capital gain bonds issue early next month and is expecting to raise up to Rs 18,000 crore through issuance of the securities. “After the government’s approval to raise funds through capital gain bonds under Section 54EC(of the Income Tax Act), the PFC board will meet on July 3, 2017 to take a call on the launch of these securities. These bonds can be launched immediately after that,” a source said. The Finance Ministry has already notified the order allowing PFC to raise funds for long terms through issuance of tax free bonds under Section 54EC. “The PFC is expecting that 15-25 per cent of its total borrowings would come through these capital gain bonds. The company’s borrowing would be slightly higher than Rs 70,000 crore last year. Thus, it is eyeing up to Rs 18,000 crore funds through these bonds,” he said. The PFC is the first company to raise capital gain bonds under Section 54EC this fiscal. The issue would remain open till March 31, 2018.
Section 54EC provides that capital gains subject to a maximum of Rs 50 lakh arising from the transfer of a long term capital asset shall be exempt if the assessee invests the whole or any part of capital gains in certain specified bonds within a period of six months. An investor can save up to to a maximum Rs 10,00,000 by investing maximum permissible amount of Rs 50 lakh in these bonds. The PFC capital gain bonds will carry highest domestic credit ratings of ‘AAA’ from CRISIL, ICRA and CARE. As there is no cap on the amount that can be raised by the issuer, full allotment is assured to the investors up to the amount permitted under section 54EC.
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Earlier, only NHAI and REC were allowed to issue these bonds. However, in the Finance Act 2017, section 54EC of the IT Act was modified to include any other bond notified by the Central Government, paving the way for PFC to issue the bonds. The PFC is the lead financier in the power sector and is the largest infrastructure company in the country based on net worth. Apart from the capital gain bonds, the PFC also intends to raise money through external commercial borrowings and Masala Bonds to meet its requirements for 2017-18. With the proposed bond issue, PFC intends to lower its overall cost of funds during this fiscal, the source added.