REC gets nod to sell deep-discount debt for a second time, document shows

REC has received approval from the Central government to raise funds through deep-discount bonds for a second time in less than a year, a government document dated May 30 showed.

REC has until the end of March 2027 to raise up to ₹5,000 crore ($581.7 million) through the sale of zero-coupon, deep-discount bonds, with a tenor of 10 years and six months. REC did not reply to a Reuters email seeking comment.

Deep-discount bonds, a rarely used corporate debt structure, are generally issued at a more than 20-25 per cent discount to their face value and do not pay regular interest, a feature similar to zero-coupon notes that removes reinvestment risks.

Instead, the bonds are redeemed at face value at maturity, giving investors their return on investment. REC was the first firm that received approval last financial year to raise such debt.

It raised ₹5,000 crore through the issue at a yield of 6.25 per cent in September.

Since March, this is the fourth approval from the government for a state-run firm to issue a deep-discount debt.

This year at least six Indian state-run companies have sought government approval to issue deep-discount bonds.

In March, the government had allowed Power Finance Corp (PFC) to issue ₹10,000 crore of such debt, followed by Housing and Urban Development Corp (HUDCO), which was given the go-ahead in April to issue deep-discount bonds worth ₹5,000 crore.

Last month, Indian Railway Finance Corp (IRFC) was allowed to raise up to ₹10,000 crore. All these firms have to complete the fundraising by the end of March 2027.

In April, PFC was forced to shelve its deep-discount bond issue, after weak investor appetite led to unattractive pricing, according to merchant bankers.

Published on June 4, 2025