Power Finance Corp. Plans To Tap Debt Market With Zero Coupon Bond Issue

Power Finance Corp. plans to raise as much as Rs 3,500 crore through the issue of zero coupon bonds on Wednesday, three merchant bankers told NDTV Profit.

The bond issue, maturing on June 2, 2035, carries a base size of Rs 600 crore and a greenshoe option of Rs 2,900 crore.

On April 23, NDTV Profit had reported that frequent issuer PFC was in talks with investors to issue zero coupon bonds by May.

This has come as the Central Board of Direct Taxes on March 11 had given the company an approval to issue a deep discount bond.

This is in line with several other state-owned entities making a beeline to seek the government's approval on zero coupon bonds. Earlier in April, Housing and Urban Development Corp. received a similar clearance to issue five-year zero coupon bonds.

National Bank for Agriculture and Rural Development, Small Industries Development Bank of India, Indian Renewable Energy Development Agency, Indian Railway Finance Corp. and REC are said to have been seeking the government's approval to issue such bonds.

This hunger for zero coupon bond issuances has come after REC, last year, successfully raised funds through such bonds. A deep discount bond is a security sold at a discount of over 20% than its face value.

The government is giving an approval to issue these bonds 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.

Separately, PFC also plans to raise up to Rs 2,500 crore through the issue of plain vanilla bonds, maturing on April 2040. The issue has a base size of Rs 500 crore and a greenshoe option of Rs 2,000 crore.

Bidding for both PFC's bond issuances will be on the National Stock Exchange's electronic bidding platform. While timing for zero coupon bond's bidding will be from 11 a.m. to 12 p.m., that for April 2040's bond issue will be from 10:30 a.m. to 11:30 a.m.

Both bonds are rated AAA by CRISIL Ratings and will be allotted on May 2.