REC Seeks Bids For Deep Discounted Bond Issue On Sept. 30

In what can be called a rare issuance in the corporate bond market, Rural Electrification Corporation Limited has invited bids on Sept. 30 to raise up to Rs 5,000 crore through a zero coupon bond, three people in the know told NDTV Profit.

The issue has a base size of Rs 1,000 crore and a greenshoe option of Rs 4,000 crore. The bonds will have a maturity of Nov. 3, 2034.

Bidding will take place on the BSE's electronic platform from 12:00 pm to 100 pm. The bonds rated AAA by CRISIL Ratings will be allotted on Oct. 3, 2024.

On Sept. 17, NDTV Profit exclusively reported that REC Ltd plans to issue zero coupon bonds, which are also called deep discount bonds and is likely to hit the debt market in the next fortnight.

The Central Board of Direct Taxes has allowed REC to issue this deep discount bond because the entire income received from investors will be considered under long-term capital gains tax instead of interest income, making these bonds tax efficient.

According to the notification, REC will be able to raise a maximum of Rs 2,517.85 crore through this issue. The bonds will carry a face value of Rs 5,000 crore.

"The discount on the zero coupon bond issue will be decided on the day of bidding," a person involved in the transaction said. A deep discount bond is a security sold at a discount of over 20% of its face value.

It pays low or no coupon payments to the bondholder during its entire holding period and is a guarantee by the issuer to pay the bondholder a greater amount than the amount originally invested on the maturity date.