PFC may raise Rs 5,000 cr through tax-free bonds

New Delhi: State-run lending agency Power Finance Corp may raise Rs 5,000 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 Rs 5,000 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 Rs 30,000 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 said.

The Power Ministry is of the view that it may bring the borrowing cost for the company down by about 1.5 per cent.

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 Rs 3,400 crore of the total proceeds of Rs 4,700 crore from the FPO.

The government holds about an 84 per cent stake in PFC.

PFC will utilise the proceeds from the FPO for meeting its lending and disbursement targets this fiscal (2011-12)

Source: Financial Express