Types of Instruments Used for Raising of Funds by Pfc in the Domestic Market

DATA ANALYSIS & DISCUSSION

        Types of Instruments used for raising of funds by PFC in the Domestic Market

        The gestation period for a thermal  and hydro power projects is 3 – 4 years and 4 – 5 years respectively. The payback period for power projects in India is b/w 12 to 18yrs; hence, it need long term loans to set up the projects. PFC resorts to short term borrowings at times to fill-up the gaps b/w disbursement and long term borrowings due to time lag and to give working capital loans to borrowers.

2.1        Sources of Rupee Borrowing

(i)        Taxable Bonds

A debt security whose return to the investor is subject to income tax.Major source of funds:-

1. The target investors are banks, FIs, Mutual Funds, PF and HNIs,
2. Less regulatory requirements, less costly, lesser time required

1. Tax Free Bonds

Interest payments are not subject to income tax. Lower coupons than corporate bonds. The Govt. of India has recently allowed IFC to issue tax-free bonds.

1. Infrastructure Bonds

Issued by IFC  to finance infrastructure projects of public interest.

Perpetual Bonds

Bond with no maturity date. not redeemable but pay a steady stream of interest forever.

1. Zero Coupon Bonds

The diff. b/w issue price (issued at discounted price) and redeemable price (face value) itself acts as interest to holders.

1. Medium Term Loans from Banks/FIs- Maturity -less than 3 years
2. Commercial Paper (CP)

A money market security issued by large banks and corp’s.Used to manage working capital. As a relatively low risk option, commercial paper returns are not large.

1. MIBOR linked loans (Mumbai Inter - Bank Offered Rate) / Short Term Loans from Banks with EMI or bullet repayment

MIBOR is the average rate of the call money transactions b/w 22 prominent players in the market. Reuters calculates the rate every evening. The rates on these loans are reset every day in tune with the ruling MIBOR rates.

1. FCNR (B) loans (Foreign Currency Non - Resident)

FCNR (B) loans are a low cost, short-term to medium term funding source available to Indian Corporate. Banks provide foreign currency denominated loans to their customers from the resources mobilized under the FCNR (B) scheme.

3.0        Sources of Foreign Currency Borrowing

3.1        External Commercial Borrowings (ECB)

In the international market the ECB is done through bonds and syndicated loans.

Benefits of ECBs are:

1)It provides the foreign currency funds, which may not be available in India

2)Cheaper as compared to the cost of rupee funds

3)Availability of the funds from the International Market is huge as compared to domestic market

1. Syndicated Loan

A large loan in which a group of banks work together to provide funds.Maturity b/w 5 to 10 years ,interest rate reset every 3-6 with ref. to LIBOR.