Rural Electrification Corporation (REC) is set to raise Rs 4,500 crore through a public issue of tax-free infrastructure bonds. This tranche issue is for Rs 1,000 crore with a greenshoe option of Rs 3,500 crore, sources said.
The coupon rate offered for this issue is 7.22% and 7.38% per annum for 10 and 15-year maturities, respectively. Retail customers, or individual customers who invest up to R10 lakh in the issue, are set to get additional 50 basis points (bps) for both these maturities. Pursuant to the guidelines received for such a bond issue, retail customers are provided with a 40% reservation in the overall issue size.
State-run power finance company had received permission to raise up to R5,000 crore through issue of tax free infrastructure bonds during this financial year. As per a notification from Central Board of Direct Taxes (CBDT), REC had raised Rs 500 crore through private placement of bonds. The remaining amount is to be raised through a public issue now.
The bond issue will open on Monday and close on December 10, said sources requesting anonymity. Retail customers, however, would lose their 50 bps advantage while selling these bonds, he said.
In his Budget speech, former finance minister, Pranab Mukherjee had doubled the tax-free bond target to R60,000 crore, allowing ten state-run infrastructure companies to araise this amount before March 2013.
Experts believe that investors may not be interested in these bonds as the returns are too low. Though, a few investors may consider them as part of their annual tax-saving exercise.
As part of procuring cheaper funding for infrastructure projects, the government had permitted these companies to raise funds from investors, by providing tax exemptions. However, these companies are not permitted to provide high coupon rates on these products, due to which investor interest has been low.
The principal and the interest earned by investors on these bonds are tax-free, however capital gains made on listing these bonds would be taxable.