Appendix 53

GUIDELINES FOR FLOATATION OF PUBLIC SECTOR BONDS PRESS RELEASE DATED 6‑1‑1992

1. Applicability : This scheme is applicable to all such Public Sector Enterprises (PSEs) whose equity share capital is fully owned by the Central Government. Subject to the approval of Department of Economic Affairs, bonds can be issued by existing as well as new corporate undertakings including Finance Corporations that may be set up in the specified sectors like railways, etc. However, approval for tax exemptions will be obtained from CBDT in the Ministry of Finance before approaching public etc. for subscription.,

2. Objects of Issue : The objects of the issue may include one or more of the following:

(a) Setting up of new projects,

(b) expansion or diversification of existing projects,

(d) augmenting the long‑term resources of the company for working capital requirements.

3. Quantum of Issue : The amount of issue of bonds for project financing and other objects will be approved on a case by case basis, by the Ministry of Finance in consultation with the Administrative Ministry, which will recommend the same after obtaining Presidential sanction and Planning Commission's concurrence.

4. Debit Equity Ratio : The debt equity ratio shall not normally exceed 4: 1, subject to the project being certified viable and the ratio being approved by the Central Government.

5. Interest Rate : interest rate on the bonds shall not exceed the rates prescribed in Guide

lines 12 below.

Mode of Payment of Interest: Any suitable mechanism may be prescribed by the public sector enterprise with the approval of Government in the Ministry of Finance.

6. Buy‑Back Arrangement : Buy‑back arrangements upto Rs. 40,000, of the face of the bonds from any individual may be provided at the option of the PSE after a lack‑in period of three years from the date of allotment of 9 per cent bonds, and one year in the case of taxable bonds.

7. Denomination of the Bonds : The bonds can be of the face value of Rs. 1,000, Rs. 5,000 or Rs. 10,000.

8. Institutional Placements : The bonds can be placed with public sector investment institutions with the prior approval of Ministry of Finance.

9. Listing of Bonds : The bonds shall be listed on the Stock Exchange.

10. Mode of Transferability : The bonds can be transferred as under:

1. In the case of taxable bonds the bonds can be transferred by endorsement or delivery only if the transferor informs the public sector enterprises by registered post within a period of 60 days of such transfers.

2. In the case of tax‑free bonds, the bonds can be transferred and the exemption from tax will be available to the holders of such bonds only if he registers his name and the holding with that public sector enterprise.

11. Investment by NRIs : Non‑resident Indians can invest in these bonds on non‑repatriation basis only.

12. Terms and Conditions : The PSEs can issue bonds subject to the above guidelines from the following alternatives subject to specific approval of the Department of Economic Affairs and Central Board of Direct Taxes in the Ministry of Finance in each case:

Public Sector Bonds			Public Sector Bonds
Alternative‑I		Taxable Bonds	Alternative‑II	Tax‑free Bonds
	1. Maturity	7 to 14 years	Maturity	10 years upto 9 % p. a.
	2. Rate of Interest	As may be decided between the issuing corporation and the sub-scribing public sector investment institutions.	Rate of Interest	9% p.a.

PSEs may, with the approval of the Ministry of Finance offer either/or a combination of both types of the bonds:

13. Tax‑benefits

(i) The income by way of interest on the taxable bonds will be entitled to exemption under section 80L of the Income‑tax Act, 1961,

(ii) The income by way of interest from bonds with interest rate upto 9 per cent will be entitled to exemption from Income‑tax Act, 1961, without limits,

(iii) These bonds will be exempt from Wealth‑tax within the overall limit specified under section 5(IA) of the Wealth‑tax Act.

14. Agencies for Public Issues : The public sector undertaking may appoint a suitable agency/agencies from amongst the nationalised banks or all India financial Institutions to manage the issue and for other allied and ancillary services pertaining to the issue.

15. Timing : PSEs planning to raise resources through these bonds should write to the Ministry of Finance well in advance so that the issue if approved, can be appropriately allotted and bouncing of bonds issues can be avoided. [Issued by the Ministry of Finance, Department of Economic Affairs, Office of the Controller of Capital Issues vide Press Release dated 6‑1‑1992].

Clarification regarding Public Issue of Bonds and other Securities by State Level PSU's

Press Note, dated 29‑10‑1992

The Centre has clarified that the public issue of bonds and other types of securities by State Public Sector Enterprises should be governed by the guidelines issued by the Securities Exchange Board of India (SEBI) in force of the relevant time. This has been done with a view to protect the interests of investors and also to ensure due accountability of funds raised through such instruments. The State level public sector enterprises issuing such securities should approach the market on their own strength and should not arrange the securities to be guaranteed by the State Government concerned in regard to repayment of principal or interest. This announcement comes in the wake of several requests received from time to time by the Centre from public sector companies owned by the State Govemments wholly or in part, seeking permission for public issue of bonds, non-convertible debentures and other types of debt instruments for project financing. [Source: PlB Press Release dated 29‑10‑1992].