REC raises ₹5,000 crore via Zero Coupon Bonds

REC’s zero-coupon bonds attract strong investor interest, oversubscribed seven times, offering attractive yields and tax benefits for long-term gains.

REC Limited, a state-run financial company, has successfully raised ₹5,000 crore (approximately £596.7 million) through a significant issuance of deep-discount zero coupon bonds. These bonds, which offer a yield of 6.25 percent, attracted substantial interest from investors, marking a rare corporate bond opportunity.

The bond issue had a base size of ₹1,000 crore, with an option to increase by ₹4,000 crore. It received bids worth ₹33,670 crore, nearly 34 times the base amount, demonstrating strong demand across various investor groups, including institutional buyers and high-net-worth individuals.

“This unique product generated interest due to its attractive tax benefits,” said Umesh Khandelwal from Tipsons Group. Unlike many current tax-free bonds yielding around 5.20 per cent to 5.25 per cent, the REC bonds provide an effective post-tax return of approximately 5.47 per cent to 5.48 per cent.

The bonds are designed to be issued at a discount and redeemed at face value. Since they are notified by the CBDT, the long-term capital gains tax on these bonds is set at a lower rate of 12.5 per cent, making them appealing to investors.

The last issuance of similar bonds by REC occurred in the 2010-11 fiscal year. The bonds are set to be listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), with a net pay-in expected by 3rd September 2024. All four major credit rating agencies have rated the bonds as AAA, indicating a strong investment grade.