Thursday, December 6, 2012

Details of REC tax free bonds 2012

REC is a Navratna Central Public Sector Enterprise under Ministry of Power. It is incorporated under the Companies Act, 1956, is listed and has a net worth of Rs. 14,745 Crore as on 31.03.12. Its main objective is to finance and promote rural electrification projects all over the country. It provides financial assistance to State Electricity Boards, State Government Departments and Rural Electric Cooperatives for rural electrification projects as are sponsored by them. The  company disbursed Rs. 30,593 Crores and had a total income of Rs. 10,457 Crores in FY 2012. The company had a PAT of Rs. 2,817 Crores in FY 2012.

REC is offering tax-free secured redeemable non convertible bonds aggregating Rs 1,000 crore with an option to retain Rs 4,500 crore. The issue is AAA rated by CRISIL, ICRA and Care. Investors can choose to apply in demat as well as physical form. The face value of each bond is Rs 1,000 and one can make an investment for a minimum of five bonds and in multiples of one bond thereafter. Applications up to Rs 10 lakhs shall be considered in the retail category. The bonds are proposed to be listed on BSE and NSE. The issue is currently open and closes on December 10

The product: There are two series of bonds on offer, series 1 with tenure of 10 years and series 2 with tenure of 15 years. In series 1, a retail investor shall be eligible for an interest rate of 7.72%., while in series 2, he will earn an interest of 7.88%. All other category of investors namely HNI, QIB and institutional investors will earn interest rate which is 50 basis points lower than that on offer for retail investors. However, the differential rate for retail investors shall be applicable only to the original allottee. In the event, the original allottee sells these bonds; the subsequent allottee will get interest rates which other investors get. "Since the yields from tax free bonds trading in the secondary markets is between 7.2-7.5%, it makes sense for retail investors to apply for these bonds through the public issue," says Deepak Punjwani, Head (Debt markets), GEPL Capital.


Issue Details

1.      Rs. 1000 crores with right to retain oversubscription upto the Shelf Limit (i.e. upto Rs 4,500 crores)

2.      Face value of each Bond shall be Rs. 1,000/- and the minimum application size shall be for 5 bonds and in multiples of 1 Bond thereafter.

3.      Issue Opening Date : 3rd Dec.,12.

4.      Issue Closing Date : 10th Dec.,12



Series of Bonds*

Tranche 1 Series 1

Tranche 1 Series 2


10 Years

15 Years

Frequency of interest payment

                                    Annual                                                                                    Annual

Mode of payment

Through various modes available**

Through various modes available**

Coupon rate (% p.a.) for Category I,II,III



Additional Coupon Rate*** (% p.a.) Category IV***



Aggregate Coupon Rate (% p.a.) for Category IV***



Effective yield(% p.a.) for Category I, II

and III applicants



Effective yield (% p.a.) for Category

IV applicants***



Coupon Type

Fixed coupon rate

Fixed coupon rate




*** In case the Bonds held by the original allottees under Category IV Portion are sold / transferred (except in case of transfer of Bonds to legal heir in the event of death of the original allottee), the coupon rate shall stand revised to the coupon rate applicable for allottees falling under Category I, Category II and Category III Portion. 



Categories of Reservation:

1.      Category I – QIB’s                                           :   30%

2.      Category II – Non Institutional Investors          :   15%

3.      Category III – HNI’s                                         :  15%

4.      Category IV – Retail Individual Investors        :   40%


Interest on Application Money:

1.    On application money allotted    :    @ the rate of 7.22% p.a. and 7.38% p.a. on 10 Year option and 15 Years Option respectively for allottees

    under Category I, Category II and Category III Portion, and at the rate of 7.72% p.a and 7.88% p.a. on  10 Year option and 15 Years Option respectively for allottees under Category IV Portion


2.    On application money refunded:     @ 5% p.a.


Why invest: Existing tax-free bonds in the secondary markets are offering lower yield. Since interest rates are expected to go down, subsequent tax-free bond issues could be at lower rates.

Why not to invest: If you sell bonds in the secondary market, subsequent investors will get interest rates which are lower by 50 basis points. So the liquidity could be low.

Documents for reference:

REC Tax Free Bonds 2012 Prospectus

Documents required for REC Bonds

REC Tax Free Bonds 2012 Product Note

REC Tax Free Bonds 2012 FAQ









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