New Delhi: Power Finance Corp (PFC) may raise Rs5,000 crore this fiscal through a tax-free bond issue, an instrument that would help the company raise cheaper loans.
PFC, which is engaged in financing power generation and transmission projects would be able to borrow at a lower cost.
The ministry of finance’s approval for the issuance of these bonds can be expected in a day or two.
“We are awaiting the ministry of finance’s nod to allow PFC to raise Rs5,000 crore through tax-free bonds in the current fiscal,” a senior Power Ministry official said, adding that the approval can be expected in a day or two.
PFC has set a target for borrowing Rs30,000 crore during the current financial year (2011-12).
“The cost of financing has gone up... These (tax-free) bonds would bring down the borrowing cost for PFC and it is a good way to tap new sources of finance,” KPMG executive director Arvind Mahajan told PTI.
The power ministry is of the view that it may bring down the borrowing cost for the company by about 1.5%.
For example, if the company was borrowing at an interest rate of 8.5%, it would be able to get that loan at 7% interest.
However, analysts think the impact may be more substantial, i.e. it can be more than 1.5%.
Last year, PFC was given the status of an infrastructure finance company -- a move that enabled the entity to mop up funds by issuing tax-free infrastructure bonds.
PFC came out with a follow-on public offer (FPO) last month and raked in over Rs3,400 crore.
The government holds about an 84% stake in PFC.
PFC will utilize the proceeds of the FPO for meeting its lending and disbursement targets this fiscal (2011-12).
Meanwhile, National Highways Authority of India (NHAI) also plans to raise Rs10,000 crore through tax-free bonds to fund its road projects, this fiscal.
Finance minister Pranab Mukherjee in his Budget 2011-12 had said that the government would allow NHAI to raise funds to the tune of Rs10,000 crore through tax-free bonds in 2011-12.
It would raise the fund in two tranches of around Rs5,000 crore each.