REC to raise Rs 1,200 cr through capital gains exemption bonds

Our Corporate Bureau

Mumbai, May 22: THE Rural Electrification Corporation (REC) has announced its entry into the capital gains exemption bond market. REC plans to float these bonds in the market in the current fiscal and expects to raise atleast Rs 1,200 crore.
REC was granted eligibility this year to launch capital gains exemptions bonds. The Finance Bill 2001-02 allows it to raise these bonds under section 54 EC of the Income Tax Act.

REC would make a private placement offering with a tenure of five years with put and call options after three years, which will be ‘on tap’ throughout the year. The bonds will carry a coupon rate of 8.50 per cent annualised with half yearly and yearly interest payment option. Investors opting for cumulative interest payment option would get a compounded interest rate.
The investor will have three options for payment of interest. The investor can get his interest on an annulised basis, or half-yearly payment basis and cumulative interest at the end of the tenure.

Announcing the plans for the bond issue, REC Chairman and Managing Director Divakar Dev said that the Corporation has felt a need to diversify its borrowing base.

REC, prior to fiscal 2000-01, had mobilised its resources through budgetary allocations and borrowings from the debt market on a private placement basis. The date of allotments for the capital gains exemption bonds will be twice a month and the minimum amount that can be invested in the bonds, will be Rs 1 lakh. REC has appointed nine merchant bankers for the issue.
REC will however face competition from Nabard and NHAI, which is also allowed to raise money from the market through capital gains exemptions bonds. REC had recently reduced lending rates by one per cent.

The Corporation now lends to state electricity board at rates ranging from 12.5 per cent to 13 per cent.