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. The Finance Ministry has already notified the order allowing PFC to raise funds for long terms through the issuance of tax-free bonds under Section 54EC.
PFC is the lead financier in the power sector and is the largest infrastructure company in the country based on net worth. With the proposed bond issue, PFC intends to lower its overall cost of funds during this fiscal. In the last financial year, the company had raised Rs 66,800 crore at an average interest rate of 7.47%.
PFC is the first company to raise capital gain bonds under Section 54EC this fiscal. The issue would remain open till 31 March 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 the 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, a full allotment is assured to the investors up to the amount permitted under section 54EC. 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.
“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 3 July 2017 to take a call on the launch of these securities. These bonds can be launched immediately after that,” PTI reported quoting an unnamed source.
“The PFC is expecting that 15-25% 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,” the report said.
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Earlier this month, company’s chairman and managing director Rajeev Sharma had said that the firm will raise Rs 70,000 crore debt this financial year through a mix of financial instruments such as external commercial bonds, rupee denominated masala bonds and other instruments.
“We have applied for (permission to raise through) 54EC capital gain tax bonds. We understand the permission in the advanced stages with the ministry of finance. We are diversifying borrowing portfolio to reduce cost of funds,” he said.