 "REC eyes another Rs 5,000 crore fundraise through zero-coupon bonds")
State-owned REC Ltd is looking to raise an additional Rs 5,000 crore in the current financial year (FY25) through the issuance of deep-discount zero-coupon bonds, according to sources familiar with the development.
The state-owned infrastructure-focused lender had previously raised Rs 5,000 crore through Central Board of Direct Taxes (CBDT)-notified zero-coupon bonds on September 30 of this year, offering an effective yield of 6.25 per cent per annum. The issue saw overwhelming demand, with the bonds being oversubscribed by nearly seven times the issue size of Rs 5,000 crore.
The issuance had a base issue size of Rs 1,000 crore, with a greenshoe option of Rs 4,000 crore. The company received bids worth Rs 33,670 crore, nearly 34 times the base issue.
Zero-coupon bonds are issued at a deep discount and redeemed at face value. They offer investors tax advantages as the redemption is classified as long-term capital gains and taxed at a lower rate of 12.5 per cent per annum due to the CBDT notification.
Deep-discount bonds are typically issued at a discount of over 20 per cent to their face value and do not pay regular interest. Similar to zero-coupon bonds, this structure eliminates reinvestment risk for investors.
Meanwhile, REC raised Rs 3,000 crore last week through the issuance of 15-year bonds at a tight pricing of 7.09 per cent. This marked the first long-tenure (10 years and above) bond issuance by a ‘AAA’-rated entity in some time, signalling strong demand from long-term investors, including insurance companies and pension funds. The move highlights a growing urgency among these investors for high-rated corporate bonds, particularly in the case of rare long-tenure issuances. Additionally, REC also raised Rs 2,901 crore through 5-year bonds at a coupon rate of 7.34 per cent.
REC is a 'Maharatna' company under the administrative control of the Ministry of Power, Government of India, and is registered with the Reserve Bank of India (RBI) as a non-banking finance company (NBFC). REC provides long-term loans and other financing products to state, Centre, and private companies for the creation of infrastructure assets in the country.
Separately, Indian Railway Finance Corporation (IRFC) – a dedicated financing arm of the Indian Railways for mobilising funds from domestic as well as overseas capital markets – is seeking bids from investors in the domestic capital market to raise Rs 3,000 crore through bonds maturing in 15 years. The issuance has a base size of Rs 500 crore and a greenshoe option of Rs 2,500 crore. The bonds are rated ‘AAA’ by domestic credit rating agencies Icra, Crisil, and Care.