Zero coupon bond (s. 2(112))

Who may apply and when. An infrastructure capital company, infrastructure capital fund, infrastructure debt fund or public sector company applies in Form No. 2, at least three months before the proposed date of issue. The application cannot be for a bond to be issued beyond two financial years following the financial year of the application. It is to be disposed of within six months from the end of the month of receipt.

Documents (sub-rule 4). A copy of the certificate of incorporation (infrastructure capital company, infrastructure debt fund, or a public sector company that is a Government company); a copy of the registered trust deed (infrastructure capital fund); or a copy of the relevant Central, State or Provincial Act (public sector company that is a corporation established by or under such an Act).

Conditions the Central Government must be satisfied about (sub-rule 5)

• the bond's life is not less than ten years and not more than twenty years;
• the issuer has an investment-grade rating from at least two credit rating agencies registered under section 12(1A) of the SEBI Act, 1992;
• arrangements are made to list the bond on a recognised stock exchange in India;
• the issuer undertakes to invest the money raised: 25% or more before the end of the financial year following the year of issue, and the balance within four financial years following the year of issue; and
• for an infrastructure debt fund, an undertaking to maintain a sinking fund for the interest accruing on all zero coupon bonds subscribed, invested in Government security as defined in section 2(f) of the Government Securities Act, 2006.

The notification (sub-rule 6) gives, among other things: the bond's name, its period of life, the issue schedule, the amount payable on maturity or redemption, the discount, and the number of bonds to be issued.

After issue. Within two months of the end of each financial year referred to in sub-rule (5)(d), the entity furnishes an accountant's certificate (accountant as defined in section 515(3)(b)) showing the amount invested in each year, in Form No. 3. The Government may reject an application after giving a reasonable opportunity of being heard (sub-rule 7), and may withdraw the notification if conditions are not fulfilled (sub-rule 9).

Definitions (sub-rule 10). "Discount" and "period of life of the bond" have the meanings in section 32(d)(i) and (ii); "infrastructure debt fund" means a fund notified under Schedule VII [Table: Sl. No. 46].