Zero coupon bond – CBDT issues guidelines

By Vijay Kumar

Zero coupon bond – is generally understood as a debt instrument where both the principal and interest are paid at maturity, with no interest payments during the life of the instrument. The following conditions are prescribed.

(i) the period of life of the bond is not less than ten years and not more than twenty years;

(ii) the infrastructure capital company or infrastructure capital fund or public sector company proposing to issue a zero coupon bond has an investment grade rating from at least two credit rating agencies registered under sub-section (1A) of section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(iii) necessary arrangement has been made by the infrastructure capital company or infrastructure capital fund or public sector company for listing the zero coupon bond in a recognised stock exchange in India;

(iv) where the application is made by the infrastructural capital company or infrastructure capital fund, such company or fund shall furnish along with the application an undertaking that the money realised on issue of the zero coupon bond shall be invested by it in the following manner, namely:-

(i) twenty-five per cent, or more of such realisation before the end of the financial year immediately following the financial year in which the bond is issued;

(ii) the balance of such realisation within a period of four financial years immediately following the financial year in which the bond is issued;

(v) where the application is made by a pubic sector company, such company shall furnish along with the application an undertaking that the money realised on issue of the zero coupon bond shall be invested or utilised by it in the following manner, namely:-

(i) fifteen per cent, or more of such realisation before the end of the financial year immediately following the financial year in which the bond is issued;

(ii) the balance of such realisation within a period of six financial years immediately following the financial year in which the bond is issued;

NOTIFICATION NO. 93/2006, Dated : March 30, 2006