2. Rural Electrification Corporation Limited
About the company Objectives
REC is a Navratna Central Public Sector Enterprise To promote and finance projects in power
under Ministry of Power. It is incorporated under generation, distribution promotion of
the Companies Act, 1956, is listed and has a net decentralized and non-conventional energy
worth of Rs. 12,789 Crore as on 31.03.11. Its main sources
Implementation of Rajiv Gandhi Gramin
objective is to finance and promote rural Vidyutikaran Yojana
electrification projects all over the country. It To expand and diversify into other related areas
provides financial assistance to State Electricity and activities like financing of decentralized
Boards, State Government Departments and Rural power generation projects, use of new and
Electric Cooperatives for rural electrification renewable energy sources, consultancy services
projects as are sponsored by them. etc.
The company disbursed Rs. 28,517 Crores and To mobilize funds from various sources
To assist loanees by providing technical guidance,
had a total income of Rs. 8,495 Crores in FY 2011. consultancy services and training facilities
The company had a PAT of Rs. 2,570 Crores in FY
2011.
Achievements
Consistently rated as 'Excellent'- the highest
category - by Govt. of India since 1993-94.
Received 'MOU' Award from the Government of
India five times, for 'Excellence in performance'
Cumulative sanctions & disbursements stand at
Rs. 2,60,000 Cr.& 1,30,000 Cr. respectively.
Received 'MOU' Award from the Government of
India five times, for 'Excellence in performance'
3. Tax free Bonds
Relevant Extracts of Section 10(15)(iv)(h) of Income Tax Act,1961:
“Section 10 . INCOMES NOT INCLUDED IN TOTAL INCOME.
In computing the total income of a previous year of any person, any income falling within any of the
following clauses shall not be included – 15 (iv) Interest payable - … …(h) By any public sector company in
respect of such bonds or debentures and subject to such conditions, including the condition that the
holder of such bonds or debentures registers his name and the holding with that company, as the Central
Government may, by notification in the Official Gazette, specify in this behalf”
Features Advantages
The interest income on the bonds is not The Interest income on the bonds is tax free
taxable/exempt. No cap on amount of investment eligible for
Tenure: Choice of 10 years and 15 years tax benefits
Proposed to be listed on NSE and BSE No lock-in period*
No lock-in period * Bonds will be listed on NSE and BSE
Secured issue
In demat form only
PAN is Mandatory
* For exact details, please refer Shelf prospectus dated February 21, 2012 for REC and Tranche Prospectus, filed with the stock
exchange(s) from time to time.
4. COUPON AND PRE TAX YIELDS
• Current 10 year G-Sec Yield*: 8.19 % semi annual or 8.35 % annual
• Therefore, the coupon at an upper cap arrive to
• 7.85 % for Public Issue
• The interest on these bonds are tax free, and offers an effective yield** of
• Individuals and HUF: Up to 11.36 % p.a.
Tax bracket Assumed Coupon Rate Effective Yield
10% 7.85% 8.75%
20% 7.85% 9.89%
30% 7.85% 11.36%
• Up to 11.62 % - for a domestic corporate entities
Please note however the rates above are caps and the company may fix the rates lower than the cap shown above
RECENT ISSUES OF SIMILAR BONDS
Effective yield on tax free bonds is higher than other tax free instruments. Indicative rate of return of the
recent issues in FY2011-12 are given in the table below:
Private Placement Public Issue
The Public issue of NHAI and
IRFC NHAI PFC PFC Opened in the last week
(November 2011) (December 2011) (December 2011) of December 2011 and
Tenor 10 years 15 years 10 years 15 years 10 years 15 years received huge response from
institutional investors,
Post Tax Coupon 7.55% 7.77% 8.20% 8.30% 8.20% 8.30% Corporate, HNIs and NRIs.
Both the issues were
Pre tax yields
(Individuals)
Tax @30.9%
10.93% 11.24% 11.87% 12.01% 11.87% 12.01% oversubscribed on the first
day itself.
(Corporates)
11.18% 11.50% 12.14% 12.29% 12.14% 12.29%
Tax @ 32.45%
* G Sec yields as on 21st February 2011, if the issue opens in March, the reference rate of 29 th March 2012 will be taken.
** The effective yield considers surcharge and cess, as applicable
Note: The above rates are mere illustration and the actual coupon shall be decided at the time of opening of the Issue.
5. Retail Benchmarks
Annual Post tax
Scheme Tenor Interest return* Features/Liquidity Tax Breaks
Fixed Deposits-AAA Withdrawal before maturity is allowed at a No Tax benefit, TDS
5 years 9.25% 6.39%
rated banks charge deductible
Maximum permissible Rs 100,000 withdrawal Section 80C benefit for
PPF 15 years 8.60% 8.60%
permitted from 6th financial year. deposits, interest tax free
National Saving
10 years 8.89% 6.14% No Maximum limit of investment Sec 80C benefit, NO TDS
Certificate
Senior Citizen's 5 year tenure, minimum age 55, also available Section 80C benefit for
5 years 9.00% 6.22%
Saving Scheme with public sector banks deposits, interest taxable
5 year tenure, maximum no limit. Can be
Post Office Time Section 80C benefit for
5 years 8.56% 5.92% closed after 1 year at a discount and withdraw
Deposit Account deposits, interest taxable
tax benefit
Fixed Deposits -
Withdrawal before maturity is allowed at a Section 80C benefit for
National Housing 5 years 9.58% 6.62%
charge deposits, interest taxable
Bank
Tax rates
Last 1 year Last 3 year
Mutual Fund Schemes** returns returns Capital Gains Dividends
Short term: 15.45% For individuals: Nil
Equity-Large Cap Open Ended 0.63% 25.07%
Long term: Tax free For Corporate Nil
Fixed Maturity Open Ended 9.14% 6.97%
Plans Short term: Tax bracket
Closed Ended 9.52% -
Long term:10.30% (without indexation) For individuals: 13.52%
Debt: Gilt 20.60% (with indexation) For Corporate: 32.45%
Medium & Long Open Ended 8.13% 4.65%
Term
*Post tax return at tax bracket of 30%. The effect of Section 80C deduction is not taken in calculation of post tax returns.
** Data represent category average picked up from valueresearchonline.com
The above data has been extracted on 21st February 2012 from respective websites of the issuers and other information available in news.
6. Who can apply?
Category I - QIB Category I
Qualified Institutional Buyers (“QIBs”) as listed • Regional Rural Banks and Co-operative Banks, eligible to invest in
out below: the Issue;
• Mutual Fund, • Companies; bodies corporate and societies registered under the
• Public Financial Institution as defined in applicable laws in India and authorised to invest in the Bonds;
section 4A of the Companies Act, 1956; • Public/private charitable/religious trusts which are authorised to
• Scheduled Commercial Bank; invest in the Bonds;
• Multilateral and Bilateral Development • Scientific and/or industrial research organisations, which are
Financial Institution; authorised to invest in the Bonds;
• State Industrial Development Corporation; • Partnership firms in the name of the partners;
• Insurance Company registered with the • Limited liability partnerships formed and registered under the
Insurance Regulatory and Development provisions of the Limited Liability Partnership Act, 2008 (No. 6 of
Authority; 2009)
• Provident Fund with minimum corpus of
twenty five crore rupees;
• Pension Fund with minimum corpus of Category II
twenty five crore rupees; The following investors applying for an amount aggregating to
• National Investment Fund set up by above Rs. 1 lakh across all Series in the Issue:
resolution no. F. No. 2/3/2005- DDII dated • Resident Indian individuals;
November 23, 2005 of the Government of • Hindu Undivided Families through the Karta;
India published in the Gazette of India;
• Insurance Funds set up and managed by
army, navy or air force of the Union of India
• Insurance Funds set up and managed by Category III
the Department of Posts, India
The following investors applying for an amount aggregating to up
to and including Rs. 1 lakh across all Series in the Issue:
• Resident Indian individuals;
• Hindu Undivided Families through the Karta
7. Terms of the Issue*
Issuer Rural Electrification Corporation
„CRISIL AAA (Stable)‟ by CRISIL Limited „CARE AAA‟ by CARE
Credit Rating
„ICRA AAA‟ by ICRA „Fitch AAA (ind)‟ by FITCH
Instrument Tax free Secured Redeemable Non-convertible Bonds
Face value of each bond Rs. 1,000
Minimum application 5 bonds or Rs. 5,000
Trading Proposed BSE, Trading only in Demat Form
Lock in period Nil
Interest –Tax free; Short term/long term Capital Gains on transfer – Taxed at applicable rates as
Taxability
per Shelf Prospectus dated February 21 st 2012
Tenor 10 years and/or 15 years
Coupon To be decided
Interest on application money To be decided
For each of the categories, full allotment of Bonds to the applicants on a first-come first-serve
basis up to the date falling 1 (one) day prior to the date of oversubscription in that category and
Basis of Allotment
proportionate allotment of Bonds to the applicants on the date of oversubscription in that
category.
Mode of Allotment Demat (NSDL and CDSL)
Details of Depositary and beneficiary account of applicant.
Documents Required (For
Individuals and corporate) MOA, AOA and Power of Attorney or relevant resolution or authority in case of companies,
corporate bodies, registered societies, MFs, Insurance Companies etc.
*Based on Information given in Shelf prospectus dated February 21 st, 2012 and tranche prospectus filed with the
exchange from time to time.
