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Informist, Monday, Jun. 2, 2025

NEW DELHI – The finance ministry has given its approval to REC Ltd. to raise funds by issuing zero-coupon bonds, according to a gazette notification dated Friday. REC can raise INR 50 billion by issuing 500,000 zero-coupon bonds on or before Mar. 31, 2027, for a period of 10 years and six months, the notification said. The bonds will be issued at a discount of INR 22 billion, it added.

On Apr. 8 Informist had reported, citing senior finance ministry officials, that the government was in the process of giving REC the approval to raise funds through zero-coupon bonds.

Fundraising through zero coupon bonds needs permission from the finance ministry as the Central Board of Direct Taxes has to provide a special tax provision to allow the return on these papers to be classified as capital gains rather than interest income. Capital gains are taxed at a lower rate than corporate tax. Non-interest-bearing bonds, or zero-coupon bonds as they are popularly known, sell at a discount and do not offer any periodic interest payment.

On May 15, the finance ministry had given its approval to Indian Railway Finance Corp. Ltd. to raise INR 100 billion by issuing zero-coupon bonds. IRFC can issue 1 million zero-coupon bonds on or before Mar. 31, 2027, for a period of 10 years. 

This debt instrument had become unpopular and made a comeback in the corporate debt market after a 13-year hiatus with REC's bond issuance in October, which had garnered a strong response from investors, and was subscribed almost 10 times. Before that, REC had issued a similar bond in 2010-11 (Apr-Mar).

Following the resounding response from investors to its issuance in October, Vivek Kumar Dewangan, who was then the chairman and managing director of REC, had told Informist on Nov. 6 that the power sector financier was mulling a second round of issuance to raise INR 50 billion to INR 100 billion.

For the financial year ended March, REC posted a net profit of INR 157.13 billion, up 12% from the previous year. On Monday, shares of the company closed at INR 403.90 on the National Stock Exchange, almost flat from the previous close.  End

Reported by Priyasmita Dutta

Edited by Ashish Shirke

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