By Research Desk
about 7 years ago

Introduction: Rural Electrification Corporation (REC) has entered the debt capital market on 30th August 2013,  with an issue of Tax Free Bonds of face value of Rs.1,000 each, in the nature of Secured Redeemable Non Convertible Debentures.

Issue Details: Issue, closing on 23rd September, has a size of Rs.1,000 crore, with an option to retain an oversubscription of Rs.2,500 crore, aggregating the issue size to Rs. 3,500. Minimum application is Rs. 5,000 and in multiples of Rs. 1,000 thereafter, while Allotment will be done on on first come first serve basis. Being tax-free, the interest does not attract TDS nor do the bonds attract wealth tax.

Rating: Rated AAA by CRISIL, CARE, India Ratings and ICRA, indicating highest degree of safety regarding timely servicing of financial obligations.


Listing: Bonds, proposed to be listed on BSE, are to be issued both in physical and dematerialized form, hence a demat account is not necessary to buy these bonds. Also, the bonds do not have any lock-in period.


What’s on offer: Bonds have three different series under which they are being offered:



Series 1

Series 2

Series 3


10 Years

15 Years

20 Years

Interest Payment




Coupon Rate (%) p.a.




  • For retail investors*




  • Other than retail investors




Tax-effective Yield (%) p.a. (assuming 30.90% tax rate)




  • For retail investors*




  • Other than retail investors




*Retail investors defined as application upto Rs. 10 lakh from resident individuals, HUF, NRIs and QFIs being individual. 40% of the issue is reserved for retail category with balance split equally among the other three categories of institutions, corporates and HNIs (over Rs. 10 lakh) respectively.  


Company Background: A Navratna central PSU, REC provides interest bearing loans to state electricity boards (SEBs), power utilities and private sector for all segments of power infrastructure. In FY13, it posted topline of Rs. 13,526 crore and PAT of Rs. 3,833 crore, on networth of Rs. 17,529 crore. Earning NIMs of 4.70% in FY13, its loan book totaled Rs. 1.27 lakh crore, up 26% YoY. In Q1FY14, the company continued with its robust financial performance with revenue of Rs. 3,982 crore and PAT of Rs. 1,154 crore. Its current market cap stands at over Rs. 16,600 crore. Thus, the company is financially sound and secure.


Recommendation: The 15 year (Series 2) bonds, carrying the highest coupon rate, are comparable to a 12.60% pre-tax return earned on other fixed income instruments, assuming the highest tax bracket of 30.9% for retail individuals. This is very attractive rate as currently no bank is offering double digit interest rates on long term deposits.


Previous 15 year bond issues made by REC in the last 12 months are currently trading with yields of 6-7.5% on NSE, albeit with extremely thin volumes, which make it incomparable with the current offering.


We find the 8.71% rate very attractive which definitely deserves a look and an application form!

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