PFC may raise Rs5,000 crore through tax-free bonds in 2011

PFC may raise Rs5,000 crore through tax-free bonds in 2011

New Delhi: State-run lending agency Power Finance Corp (PFC) may raise Rs5,000 crore through a tax-free bond issue, a move that would result in lowering borrowing costs for the company.

Following the issuance of the tax-free bonds, the company -- which is engaged in financing power generation and transmission projects -- would be able to borrow at a lower interest rate from the market.

The ministry of finance’s go-ahead 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 Power Finance Corp 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.

Power Finance Corp 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 the news agency.

The power ministry is of the view that it may bring the borrowing cost for the company down by about 1.5%. However, analysts think the impact may be more substantial.

Last year, Power Finance Corp was given infrastructure finance company status -- a move that enabled the entity to mop up funds through the issue of tax-free infrastructure bonds.

Power Finance Corp came out with a follow-on public offer last month and raked in over Rs3,400 crore of the total proceeds of Rs4,700 crore from the FPO.

The government holds about an 84% stake in PFC. PFC will utilize the proceeds from the FPO for meeting its lending and disbursement targets this fiscal (2011-12).