Rural Electrification Corporation Limited (REC)

February 26, 2014 Rural Electrification Corporation Limited (REC) Tax Free Bond Issue Tranche II Summary: Rural Electrification Corporation Ltd (REC) has come out with its 2nd Tranche of public issue of tax free bonds in the fiscal 2014 for the face value of Rs 1,000 each in the nature of secured, redeemable non convertible debentures having tax benefits under section 10 (15) (iv) (h) of the Income tax Act, 1961, as amended, to raise Rs 250 crore with an option to retain over subscription up to Rs. 809.4 crore aggregating up to Rs. 1,059.4 crore ( RESIDUAL SHELF LIMIT ) ( TRANCHE II ISSUE ). The issue opens for subscription on February 28, 2014 and closes on March 14, 2014 (with an option for early closure or extension, as may be decided by the Board of REC). The issue consists of three series of Bonds 10 year, 15 year and 20 year carrying interest @ 8.19%, 8.63% and 8.61% p.a. respectively. Retail Individuals and HUF (applying for upto Rs.10 lakhs) would get an additional 25 bps interest rate. The CBDT has authorised REC to raise the Bonds aggregating to Rs. 6,000 crore in one to more tranches in FY14. REC has raised Rs 1500 crore of the Shelf Limit through private placement route. The company has raised an amount of Rs. 3,440.6 crore by way of Tranche I Public Issue. This Tranche II Public Issue by the Company is of Bonds for an amount of Rs. 250 crore with an option to retain oversubscription Rs. 809.4 crore aggregating upto Rs. 1,059.4 crore. Credit Rating agencies CRISIL, CARE, IRRPL and ICRA have assigned CRISIL AAA/Stable, CARE AAA, IND AAA and [ICRA] AAA respectively to this issue. Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk. Tax free bonds differ from tax saving bonds. The interest income from the instrument is not taxed in tax free bonds while investible amount does not form part of the total income in tax saving bonds. In tax free bonds there is no upper limit. This financial year, infrastructure companies such as NHAI, PFC, IRFC, HUDCO, IREDA, EPL, IIFCL are given permission to raise to the total of Rs 60,000 crore via tax free bonds. In FY12, REC had come out with the Tax free Bonds with the coupon rates of 7.93% and 8.12% for 10 & 15 years bonds respectively. These bonds are currently quoted at Rs. 1015 and Rs.1,010 offering YTM of 8.56% and 8.67% respectively (trading data as of Feb 24, 2014). In FY13, in tranche I, the company offered coupon rate of 7.22% and 7.38% for 10 & 15 years bonds respectively. They are currently quoted at Rs. 925 and Rs. 910 offering YTM of 8.74% and 8.73% respectively. In tranche 2 of FY13, the company offered coupon rate of 6.88% and 7.04% for 10 & 15 years bonds respectively and they are currently quoted at Rs. 924 and Rs. 934 offering YTM of 8.36% and 8.03% respectively. In the first tranche in the FY14, the company came out with the coupon rates of 8.01%, 8.46% and 8.37% for 10, 15 and 20 years bonds respectively (the company offered 25 bps extra for retailers). The retail series are currently quoted at Rs. 1000, Rs. 1009 and Rs. 934 offering YTM of 8.56%, 8.84% and 8.83% respectively. Investors may also consider the tax free bonds which are currently trading in the secondary markets. The following table lists out the tax free bonds which are available for trading in the secondary markets such as BSE and NSE. Comparison of tax free bonds which are available for trading in the secondary markets: Issuer Series Credit Rating Coupon Rate Tenor Residual Maturity (Year) Coupon payment frequency Latest Record Date Latest Traded Price YTM Daily Average Volume NHAI 820NHAI22 AAA 8.20% 10 Yrs 7.92 Annual 16 Sep 13 1025 8.32% 3550 NHAI 830NHAI27 AAA 8.30% 15 Yrs 12.93 Annual 16 Sep 13 1016 8.51% 4544 NHAI N3 AAA 8.27% 10 Yrs 9.95 Annual 28 Feb 14 NA NA NA NHAI N4 AAA 8.52% 10 Yrs 9.95 Annual 28 Feb 14 975.1 8.98% 767 NHAI N5 AAA 8.50% 15 Yrs 14.96 Annual 28 Feb 14 NA NA NA NHAI N6 AAA 8.75% 15 Yrs 14.96 Annual 28 Feb 14 993.95 8.88% 135635 PFC 820PFC2022 AAA 8.20% 10 Yrs 7.94 Annual 27 Sep 13 1019.99 8.36% 2584 PFC 830PFC2027 AAA 8.30% 15 Yrs 12.95 Annual 27 Sep 13 1000 8.68% 3212 PFC 719PFC2023 AAA 7.19% 10 Yrs 8.87 Annual 19 Dec 13 925 8.59% 27 PFC 736PFC2028 AAA 7.36% 15 Yrs 13.87 Annual 19 Dec 13 915 8.55% 514 PFC 688PFC2023 AAA 6.88% 10 Yrs 9.09 Annual Nil NA NA NA PFC 704PFC2028 AAA 7.04% 15 Yrs 14.10 Annual Nil 916 8.92% 277 PFC 818PFC23 AAA 8.18% 10 Yrs 9.73 Annual Nil 999.01 8.53% 388 PFC 854PFC28 AAA 8.54% 15 Yrs 14.74 Annual Nil NA NA NA

PFC 867PFC33 AAA 8.67% 20 Yrs 19.74 Annual Nil 1025 8.64% 2558 PFC Individual 843PFC23 AAA 8.43% 10 Yrs 9.73 Annual Nil 1005 8.70% 362 PFC Individual 879PFC28 AAA 8.79% 15 Yrs 14.74 Annual Nil 1011 8.94% 262 PFC Individual 892PFC33 AAA 8.92% 20 Yrs 19.74 Annual Nil 1029 8.86% 2258 IRFC IRFC N1 AAA 8.00% 10 Yrs 8.00 Annual 30 Sep 13 1003.01 8.44% 1472 IRFC IRFC N2 AAA 8.10% 15 Yrs 13.01 Annual 30 Sep 13 984 8.68% 2018 IRFC IRFC N3 AAA 7.18% 10 Yrs 8.99 Annual 30 Sep 13 920.01 8.93% 156 IRFC IRFC N4 AAA 7.34% 15 Yrs 13.99 Annual 30 Sep 13 916.1 8.73% 392 IRFC IRFC N5 AAA 6.88% 10 Yrs 9.08 Annual 30 Sep 13 925 8.49% 29 IRFC IRFC N6 AAA 7.04% 15 Yrs 14.08 Annual 30 Sep 13 873.93 8.96% 20 IRFC IRFC N7 AAA 8.23% 10 Yrs 9.99 Annual Nil NA NA NA IRFC IRFC N8 AAA 8.40% 15 Yrs 14.99 Annual Nil NA NA NA IRFC IRFC N9 Indi AAA 8.48% 10 Yrs 9.99 Annual Nil NA NA NA IRFC IRFC NA Indi AAA 8.65% 15 Yrs 14.99 Annual Nil 990 8.79% 211 HUDCO HUDCO050322 AA+ 8.10% 10 Yrs 8.03 Annual 18 Feb 14 956 8.85% 472 HUDCO HUDCO050327 AA+ 8.20% 15 Yrs 13.03 Annual 18 Feb 14 964 8.64% 2700 HUDCO 734HUDCO23 AA+ 7.34% 10 Yrs 8.98 Annual 1 Feb 14 900.05 9.03% 174 HUDCO 751HUDCO28 AA+ 7.51% 15 Yrs 13.99 Annual 1 Feb 14 899.25 8.81% 1213 HUDCO 703HUDCO23 AA+ 7.03% 10 Yrs 9.09 Annual Nil 959 8.74% 38 HUDCO 719HUDCO28 AA+ 7.19% 15 Yrs 14.10 Annual Nil 970 8.36% 11 HUDCO 814HUDCO23 AA+ 8.14% 10 Years 9.67 Annual Nil 1000 8.55% 1000 HUDCO 851HUDCO28 AA+ 8.51% 15 Years 14.68 Annual Nil 1000 8.85% 1169 HUDCO 849HUDCO33 AA+ 8.49% 20 Years 19.68 Annual Nil NA NA NA HUDCO Individual 839HUDCO23 AA+ 8.39% 10 Years 9.67 Annual Nil 979 9.16% 170 HUDCO Individual 876HUDCO28 AA+ 8.76% 15 Years 14.68 Annual Nil 1013.5 8.94% 1145 HUDCO Individual 874HUDCO33 AA+ 8.74% 20 Years 19.68 Annual Nil 1000 9.05% 298 HUDCO 851HUDCO24 AA+ 8.51% 10 Years 9.89 Annual Nil NA NA NA HUDCO 858HUDCO29 AA+ 8.58% 15 Years 14.90 Annual Nil NA NA NA HUDCO 876HUDCO34 AA+ 8.76% 20 Years 19.90 Annual Nil 1001 8.85% 1000 HUDCO Individual 876HUDCO24 AA+ 8.76% 10 Years 9.89 Annual Nil 1000 8.91% 117 HUDCO Individual 883HUDCO29 AA+ 8.83% 15 Years 14.90 Annual Nil 1024.4 8.65% 65 HUDCO Individual 901HUDCO34 AA+ 9.01% 20 Years 19.90 Annual Nil 1018 8.92% 4082 REC 793REC22 AAA 7.93% 10 Yrs 8.09 Annual 15 Jun 13 1015.11 8.56% 482 REC 812REC27 AAA 8.12% 15 Yrs 13.09 Annual 15 Jun 13 1010 8.67% 1599 REC 722REC22TF AAA 7.22% 10 Yrs 8.82 Annual 16 Nov 13 925.1 8.74% 156 REC 738REC27TF AAA 7.38% 15 Yrs 13.82 Annual 16 Nov 13 910.1 8.73% 603 REC 688REC2023 AAA 6.88% 10 Yrs 9.08 Annual 16 Nov 13 924 8.36% 128 REC 704REC2028 AAA 7.04% 15 Yrs 14.09 Annual 16 Nov 13 933.6 8.03% 73 REC 801REC23 AAA 8.01% 10 Yrs 9.59 Annual 16 Nov 13 NA NA NA REC 846REC28 AAA 8.46% 15 Yrs 14.59 Annual 16 Nov 13 NA NA NA REC 837REC33 AAA 8.37% 20 Yrs 19.59 Annual 16 Nov 13 NA NA NA REC Individual 826REC23 AAA 8.26% 10 Yrs 9.59 Annual 16 Nov 13 999.5 8.56% 356 REC Individual 871REC28 AAA 8.71% 15 Yrs 14.59 Annual 16 Nov 13 1009 8.84% 1210 REC Individual 862REC33 AAA 8.62% 20 Yrs 19.59 Annual 16 Nov 13 1000 8.83% 681 IIFCL 719IIFCL23 AAA 7.19% 10 Yrs 8.92 Annual 10 Jan 14 902 8.93% 288 IIFCL 736IIFCL28 AAA 7.36% 15 Yrs 13.92 Annual 10 Jan 14 902 8.68% 510 IIFCL 740IIFCL33 AAA 7.40% 20 Yrs 18.92 Annual 10 Jan 14 891 8.66% 887 IIFCL 686IIFCL23 AAA 6.86% 10 Yrs 9.09 Annual 11 Mar 14 950 8.70% 1 IIFCL 702IIFCL28 AAA 7.02% 15 Yrs 14.09 Annual 11 Mar 14 980 8.03% 1 IIFCL 708IIFCL33 AAA 7.08% 20 Yrs 19.10 Annual 11 Mar 14 889.8 9.03% 147 IIFCL 801IIFCL23 AAA 8.01% 10 Yrs 9.72 Annual Nil NA NA NA IIFCL 838IIFCL28 AAA 8.38% 20 Yrs 14.73 Annual Nil NA NA NA IIFCL 850IIFCL33 AAA 8.50% 15 Yrs 19.73 Annual Nil 1009 8.65% 5000 IIFCL Individual 826IIFCL23 AAA 8.26% 15 Yrs 9.72 Annual Nil 982 8.90% 91 IIFCL Individual 863IIFC28 AAA 8.63% 10 Yrs 14.73 Annual Nil 1005 8.86% 32 IIFCL Individual 875IIFCL33 AAA 8.75% 20 Yrs 19.73 Annual Nil 1010 8.90% 429 IIFCL 841IIFCL24 AAA 8.41% 10 Yrs 9.92 Annual Nil NA NA NA IIFCL 848IIFCL29A AAA 8.48% 15 Yrs 14.92 Annual Nil NA NA NA IIFCL 866IIFCL34B AAA 8.66% 20 Yrs 19.92 Annual Nil 964 9.14% 2000 IIFCL Individual 866IIFCL24C AAA 8.66% 10 Yrs 9.92 Annual Nil 1000 8.77% 99 IIFCL Individual 873IIFCL29D AAA 8.73% 15 Yrs 14.92 Annual Nil 1060 8.11% 175 IIFCL Individual 891IIFCL34 AAA 8.91% 20 Yrs 19.92 Annual Nil 1016.5 8.81% 7601 NHB NHBTF2023 AAA 6.82% 10 Yrs 9.09 Annual Nil NA NA NA NHB NHB N1 AAA 8.26% 10 Yrs 9.89 Annual Nil NA NA NA NHB NHB N2 AAA 8.63% 15 Yrs 14.90 Annual Nil NA NA NA NHB NHB N3 AAA 8.76% 20 Yrs 19.90 Annual Nil 5215 8.40% 13 NHB Individual NHB N4 AAA 8.51% 10 Yrs 9.89 Annual Nil 5035 8.54% 47 NHB Individual NHB N5 AAA 8.88% 15 Yrs 14.90 Annual Nil 5250 8.39% 37

NHB Individual NHB N6 AAA 9.01% 20 Yrs 19.90 Annual Nil 5150.15 8.79% 3923 Ennore Port 701EPL2023 AA 7.01% 10 Yrs 9.08 Annual Nil NA NA NA Ennore Port 717EPL2028 AA 7.17% 15 Yrs 14.09 Annual Nil NA NA NA DCI 697DCI2023 AA+ 6.97% 10 Yrs 9.09 Annual Nil NA NA NA JNPT 682JNPT2023 AAA 6.82% 10 Yrs 9.08 Annual Nil NA NA NA NHPC 818NHPC23 AAA 8.18% 10 Yrs 9.69 Annual Nil NA NA NA NHPC 854NHPC28 AAA 8.54% 15 Yrs 14.70 Annual Nil 1037 8.41% 3375 NHPC 867NHPC33 AAA 8.67% 20 Yrs 19.70 Annual Nil NA NA NA NHPC Individual 843NHPC23 AAA 8.43% 10 Yrs 9.69 Annual Nil 995 8.92% 101 NHPC Individual 879NHPC28 AAA 8.79% 15 Yrs 14.70 Annual Nil 1040 8.63% 166 NHPC Individual 892NHPC33 AAA 8.92% 20 Yrs 19.70 Annual Nil 1029 8.90% 562 NTPC N1 AAA 8.41% 10 Yrs 9.81 Annual Nil NA NA NA NTPC N2 AAA 8.48% 15 Yrs 14.82 Annual Nil NA NA NA NTPC N3 AAA 8.66% 20 Yrs 19.82 Annual Nil 1009 8.73% 1404 NTPC Individual N4 AAA 8.66% 10 Yrs 9.81 Annual Nil 1026 8.50% 70 NTPC Individual N5 AAA 8.73% 15 Yrs 14.82 Annual Nil 1002 8.90% 129 NTPC Individual N6 AAA 8.91% 20 Yrs 19.82 Annual Nil 1035 8.70% 559 * - Traded data as on Feb 24, 2014. Objects of the Issue: The funds raised through this Issue will be utilized towards general lending operations of the Company and other associated business objectives and to discharge existing debt obligations, which were generally undertaken for business operations. Issue Terms: Issuer Issue Issue Price and minimum application Stock Exchanges for listing Issuance Trading Trading Lot Call / Put options Depositories Rating Security Rural Electrification Corporation Limited Public Issue by Rural Electrification Corporation Limited ( REC or Issuer or the Company ) of Tax Free Secured Redeemable Non Convertible Bonds of Face Value of Rs 1,000 each in the nature of debentures having tax benefits under Section 10 (15)(iv)(h) of the Income Tax Act, 1961, as amended ( Bonds ) for an amount of Rs. 250 crores with an option to retain oversubscription upto Rs. 809.3958 crores aggregating upto Rs. 1,059.3958 crores ( Residual Shelf Limit ). Rs.1,000 & Rs.5,000 respectively BSE Both physical and dematerialized form Compulsorily in dematerialized form 1 (one) Bond Nil NSDL and CDSL CRISIL, CARE, IRRPL and ICRA have assigned CRISIL AAA/Stable, CARE AAA, IND AAA and [ICRA] AAA respectively to this issue The Bonds issued by the Company will be secured by way of first / pari passu charge on the book debts of the Company, other than those that are exclusively charged/earmarked to any trustee/lender(s) of the Company, and/or any other security as may be agreed between the Company and the Trustee, pursuant to the terms of the Bond Trust cum Hypothecation Deed with a minimum security cover of one time of the aggregate face value amount of Bonds outstanding at all times. Issue Details: For Category Investors For Category I, II & III For Category IV only Options Series 1A Series 2A Series 3A Series 1B Series 2B Series 3B Coupon Rate (%) p.a. 8.19% 8.63% 8.61% 8.44% 8.88% 8.86% Tenor 10 years 15 years 20 years 10 years 15 years 20 years Frequency of Interest Payment Annual Annual Annual Annual Annual Annual Coupon Rate (%) p.a 8.19% 8.63% 8.61% 8.44% 8.88% 8.86% Effective pre tax yield (per annum) for tax payers in 10.3% income tax bracket 9.13% 9.62% 9.60% 9.41% 9.90% 9.88% Effective pre tax yield (per annum) for tax payers in 20.6% income tax bracket 10.31% 10.87% 10.84% 10.63% 11.18% 11.16% Effective pre tax yield (per annum) for tax payers in 30.9% income tax bracket 11.85% 12.49% 12.46% 12.21% 12.85% 12.82%

Note: 1. The company will pay extra 25bps coupon rate for retailers i.e. category IV investors (invest less than 10 lakh in these bonds) than the others. For eg, as seen in the above table, retail investors will get 8.44% for 10 year bond which is 25 bps higher than that of 8.19% for non retailers. 2. If bonds allotted to retailers are transferred to non retailers, then the extra 25bps on interest rates will not be available: In case the Bonds allotted against Series 1B, Series 2B and Series 3B are transferred by Category IV to Category I, Category II and/or Category III as on the Record Date for payment of interest, the coupon rate on such Bonds shall stand at par with coupon rate applicable on Series 1A, Series 2A and Series 3A respectively. 3. If bonds allotted to retailers are transferred to retailers, then the extra 25bps on interest rates will be available: If the Bonds allotted against Series 1B, Series 2B and Series 3B are sold/ transferred by the Category IV to investor(s) who fall under the Category IV as on the Record Date for payment of interest, then the coupon rates on such Bonds shall remain unchanged. 4. If any retailer holds the bonds for the face value amount of over Rs. 10 lakh, then he will lose out the 25bps extra benefit on the coupon rate: If on any Record Date, the original Category IV allotee(s)/ transferee(s) hold the Bonds under Series 1B, Series 2B and Series 3B for an aggregate face value amount of over Rs. 10 lakhs, then the coupon rate applicable to such Category IV allottee(s)/transferee(s) on Bonds under Series 1B, Series 2B and Series 3B shall stand at par with coupon rate applicable on Series 1A, Series 2A and Series 3A respectively. 5. Verification on the basis of PAN: For the purpose of classification and verification of status of the RII Category of Bondholders, the aggregate face value of Bonds held by the Bondholders in all the Series of Bonds, allotted under the relevant Issue shall be clubbed and taken together on the basis of PAN number. Taxation: Tax Free: The Bonds are tax free in nature (exempt u/s 10(15)(iv)(h) of the Income Tax Act, 1961 and the interest on the Bonds will not form part of the total income. TDS: Since the interest Income on these bonds is exempt, no Tax Deduction at Source is required. Long Term Capital Gains: Under section 2 (29A) & 2 (42A) of the Income Tax Act, the Bonds are treated as a long term capital asset if the same is held for more than 12 Months where they are subject to the tax at the rate of 20% of capital gains with indexation or 10% of capital gains without indexation. Short Term Capital Gains: Short term capital gains, where bonds are held for a period of not more than 12 months would be taxed at the normal tax rates. STT: Securities Transaction Tax (STT) is not applicable on transactions in the Bonds. Gift Tax: As per section 56(2)(vii) of the I.T. Act, the gift shall be taxable as the income of the recipient where the aggregate fair market value of which exceeds Rs. 50,000. Wealth Tax: No wealth tax is levied. Cess: A 2% education cess and 1% secondary and higher education cess on the total income tax (including surcharge for corporate only) is payable by all categories of tax payers. DTC: The Hon ble Finance Minister has presented the Direct Tax Code Bill, 2010 ( DTC Bill ) on August 30, 2010, which is proposed to be effective from April 1, 2012. The DTC Bill is likely to be presented before the Indian Parliament thereafter. Accordingly, it is currently unclear what effect the Direct Tax Code would have on the investors.

Who can apply? Category I ("Institutions"): Foreign Portfolio Investors (other than Category III FPIs) including Sovereign Wealth Funds, Pension and Gratuity Funds registered with SEBI as Foreign Portfolio Investor; Public Financial Institutions, scheduled commercial banks, multilateral and bilateral development financial institutions, state industrial development corporations, which are authorised to invest in the Bonds; Provident funds and pension funds with minimum corpus of Rs. 25 crores, which are authorised to invest in the Bonds; Insurance companies registered with the IRDA; National Investment Fund set up by resolution no. F. No. 2/3/2005 DDII dated November 23, 2005 of the Government of India published in the Gazette of India; Insurance funds set up and managed by the army, navy or air force of the Union of India or set up and managed by the Department of Posts, India; Mutual funds registered with SEBI; and Alternative Investment Funds, subject to investment conditions applicable to them under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012. Category II ("Corporates"): Companies within the meaning of sub section 20 of Section 2 of the Companies Act, 2013; Statutory bodies/corporations; Cooperative banks; Trusts including Public/ private charitable/religious trusts; Limited liability partnerships; Partnership firms; Regional rural banks; Category III FPIs (Foreign Portfolio Investors); Societies registered under the applicable law in India and authorized to invest in Bonds; and Other legal entities, subject to compliance with their respective applicable legislations Category III ("HNIs"): The following Investors applying for an amount aggregating to above Rs. 10 lakhs across all Series of Bonds in this Tranche II Issue: Resident Indian individuals; Hindu Undivided Families through the Karta; Non Resident Indians on repatriation as well as non repatriation basis; and Eligible FPIs (Foreign Portfolio Investors) being an individual. Category IV ("RIIs"): The following Investors applying for an amount aggregating upto and including Rs. 10 lakhs across all Series of Bonds in this Tranche II Issue: Resident Indian individuals; Hindu Undivided Families through the Karta; Non Resident Indians on repatriation as well as non repatriation basis; and Eligible FPIs (Foreign Portfolio Investors) being an individual. Who can not apply? The following categories of persons, and entities, shall not be eligible to participate in the Issue and any Applications from such persons and entities are liable to be rejected: Minors without a guardian name (A guardian may apply on behalf of a minor. However, Applications by minors must be made through Application Forms that contain the names of both the minor Applicant and the guardian); Foreign nationals, other than eligible FPIs and except as may be permisible under the CBDT Notification or under all applicable laws including but not limited to RBI or SEBI laws; Non resident investors including NRIs, FPIs who are (i) based in the USA, and/or, (ii) domiciled in the USA, and/or, (iii) residents/citizens of the USA, and/or, (iv) subject to any taxation laws of the USA;

Venture Capital Fund and Foreign Venture Capital Investor; Overseas Corporate Bodies; and Person ineligible to contract under applicable statutory/regulatory requirements. Basis of Allotment: Applicants belonging to all three Categories will be allocated as given in the table below: Particulars Institutional Portion Corporate Portion HNI Portion Retail Portion Reservation for each Portion 10% of the Overall Issue Size 25% of the Overall Issue Size 25% of the Overall Issue Size 40% of the Overall Issue Size In case of an oversubscription in any of the Portions, Allotments to the maximum extent, as possible, will be made on a first come firstserve basis and thereafter on proportionate basis, i.e. full Allotment of Bonds to the Applicants on a first come first basis up to the date falling 1 (one) day prior to the date of oversubscription and proportionate allotment of Bonds to the Applicants on the date of oversubscription (based on the date of upload of each Application on the electronic Application platform of the relevant stock exchanges, in each Portion). Credit Rating: CRISIL Limited ( CRISIL ) vide its letter no.ms/fsr/rec/2013 14/1994 dated February 18, 2014, has revalidated credit rating of CRISIL AAA/Stable to the long term borrowing programme of the Company aggregating to Rs. 34500 crores. Credit Analysis & Research Limited ( CARE ) vide its letter dated February 18, 2014 has revalidated credit rating of CARE AAA to the market borrowing programme of the Company for FY 2013 14 aggregating Rs. 37000 crores. India Ratings and Research Private Limited ("IRRPL") vide its letter dated February 18, 2014 has revalidated credit rating of IND AAA to the borrowing programme of the Company aggregating Rs. 37000 crores. ICRA Limited ( ICRA ) vide its letter no. D/RAT/2013 14/R7/12 dated February 18, 2014 has revalidated the rating of [ICRA] AAA to the long term borrowing programme of the Company aggregating to Rs. 37000 crores. Instruments with such ratings are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk. The above ratings are not a recommendation to buy, sell or hold securities and Investors should take their own decision. The ratings may be subject to revision or withdrawal at any time by the assigning rating agencies and should be evaluated independently of any other ratings. Interest on application money: at the rate of 8.19% p.a., 8.63% p.a. and 8.61% p.a. on Series 1A, Series 2A and Tranche II Series 3A respectively for Allottees under Category I, Category II and Category III Portion, and at the rate of 8.44% p.a., 8.88% p.a. and 8.86% p.a. on Series 1B, Series 2B and Series 3B respectively for Allottees under Category IV Portion. Interest on Refund: 5% p.a for all categories. Liquidity and Exit Options: The Bonds are proposed to be listed on the BSE Limited Company Background: REC is a public financial institution in the Indian power infrastructure sector. The company is engaged in the financing and promotion of transmission, distribution and generation including renewable energy projects throughout India. It believes that its organization occupies a key position in the GoI's plans for the growth of the Indian power sector. REC assists clients in formulating and implementing a broad array of power projects and finance those projects. The clients primarily include Indian public sector power utilities at the central and state levels and private sector power utilities. REC services its clients through a network of project offices spread across India and one national level training centre at Hyderabad. The primary financial product of the company is project based long term loans. The company funds the business with market borrowings of various maturities, including bonds and term loans. The company commenced operations in 1969 for the purpose of developing the power infrastructure in rural areas. It has contributed to the development of rural India and India's agriculture through funding of transmission and distribution projects in rural areas.

REC is one of 14 Indian public sector undertakings to be granted Navratna status by the Department of Public Enterprise by virtue of operational efficiency and financial strength. The GoI has rated the company as Excellent continuously since Fiscal 1994. It has also been ranked among the top ten public sector undertakings in India by the Ministry of Heavy Industries and Public Enterprises for Fiscal 2000, Fiscal 2001, Fiscal 2002, Fiscal 2004 and Fiscal 2005. Domestically, the company holds the highest long term borrowing domestic credit rating from each of CRISIL Limited, ICRA Limited, Fitch and CARE Limited. On an international basis, it holds long term borrowing ratings from Fitch and Moody's that are on par with sovereign ratings for India. The Company s loan assets have grown at a CAGR of 25.92% from Rs. 50652.80 crores in Fiscal 2009 to Rs. 127355.54 crores in Fiscal 2013. As on March 31, 2013, the Company had total loan assets of Rs. 127355.54 crores and a net worth of Rs. 17,454.38 crores as per its standalone financial statement. REC had a comfortable capital adequacy ratio of 17.71% at the end of FY13 (refers to the period April 1 to March 31). The Gross NPA and Net NPA as on March 31, 2012 stood at 0.48% and 0.42% against 0.02% and 0.002% as on March 31, 2011. During FY12, the Gross NPA and Net NPA had increased mainly on account of slippage of two private sector accounts. This has also resulted in deterioration of Net NPA/Networth ratio which stood at 2.89% as on March 31, 2012. REC has two wholly owned subsidiaries i.e. REC Transmission Projects Company Ltd. and REC Power Distribution Company Ltd. It also has a 25% stake in a JV i.e. Energy Efficiency Services Limited. STRENGTHS: Financial position is strong and the business is profitable. Uniquely positioned to access and appraise borrowers in the Indian power sector. Occupying a key strategic position in the GoI's plans for growth of the power sector. Possessing an experienced management team with sector expertise. Pan India presence through zonal/project offices in most of state capitals. STRATEGY: Continue to fund the increased investment in the Indian power sector. Maintain the diversity of asset portfolio and seek higher yielding loan assets Increase the involvement in consortium lending and private sector participation in the Indian power sector Increase the fee based income Risks: Changes in the policies or support of the GoI to the business or industry. The performance of loan assets and ability to secure payment thereon (from both SEBs and private sector borrowers). Ability to finance the indebtedness as it comes due and to obtain the additional financing necessary to grow the business. Ability to maintain low cost of funds and the continued availability of low cost borrowings. Ability to manage asset liability mismatches on a continous basis. Ability to manage forex fluctuations on foreign currency borrowings. Changes in Indian and international interest rates. The continued availability of tax benefits. Ability to implement the strategy and manage growth effectively. Ability to grow asset portfolio. Ability to comply with restrictive covenants under indebtedness and manage business within those restrictions. The outcome of legal proceedings in which the company is or may become involved. Ability to compete effectively. Risks associated with the projects the company finances. General economic and business conditions in the Indian power sector or the Indian economy Changes to the regulations that govern the company and its borrowers; Ability to obtain, renew or comply with regulatory licenses; Ability to anticipate trends in the current business lines and respond suitably; Changes in political conditions in India and internationally; Governmental and regulatory actions that may affect the business or the industry.

Overdependence on power sector. REC has weak inherent asset quality because of the poor financial risk profiles of its main customers, the SPUs. The aggregate losses (excluding subsidy) of all SPUs were around Rs.620 billion in 2010 11 and are estimated to have increased further in 2011 12 and 2012 13. Additionally, REC has high sectoral and customer concentration. Financials P&L standalone: (Rs In Crores) Particulars FY13 FY12 FY11 FY10 Total Revenue 13,598.67 10,509.07 8,495.26 6,707.60 Total Expenses 8,434.72 6,716.21 5,015.75 4,060.39 Profit before Tax 5,163.95 3,792.86 3,476.28 2,647.11 Profit for the period 3,817.62 2,817.03 2,569.93 2,001.42 Balance Sheet standalone: (Rs In Crores) SOURCES OF FUNDS FY13 FY12 FY11 EQUITY AND LIABILITIES Share Holder's Funds 17,454.38 14,563.04 12,788.62 Non-current Liabilities 91,229.08 7,662.85 61,222.78 Current Liabilities 21,823.83 17,320.82 12,501.27 Total 1,30,507.29 1,08,546.71 86,512.67 ASSETS Non current Assets 1,15,408.30 91,032.19 74,441.43 Current Assets 15,098.99 17,514.52 12,071.24 Total 1,30,507.29 1,08,546.71 86,512.67 Financial Highlights standalone: (Rs In Crores) Particulars As on/for the half year ended 30.09.13 (Limited Review) As on/for the year ended 31.03.13 (Audited) As on/for the year ended 31.03.12 (Audited) As on/for the year ended 31.03.11 (Audited) Net worth 18,939.48 17,454.38 14,563.04 12,788.62 Total Debt 1,17,790.97 1,07,791.17 90,056.47 70,039.70 Net interest income 3,413.37 5,284.70 3,885.22 3,257.76 Gross NPA (%) 0.35% 0.39% 0.48% 0.02% Net NPA (%) 0.27% 0.32% 0.42% 0.00% Tier I Capital Adequacy Ratio (%) 16.50% 15.05% 18.04% Capital Adequacy ratio (%) 17.71% 16.00% 19.09% Net interest margin 4.91% 4.70% 4.32% 4.48% Fax: (022) 30753435 Corporate Office, HDFC Securities Limited, I Think Techno Campus, Bulding B, Alpha, Office Floor 8, Near Kanjurmarg Station Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Fax: (022) 30753435 Website: www.hdfcsec.com Disclaimer: This document has been prepared by HDFC Securities Limited and is meant for sole use by the recipient and not for circulation. This document is not to be reported or copied or made available to others. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. The information contained herein is from sources believed reliable. We do not represent that it is accurate or complete and it should not be relied upon as such. We may have from time to time positions or options on, and buy and sell securities referred to herein. We may from time to time solicit from, or perform investment banking, or other services for, any company mentioned in this Disclaimer: HDFC Bank (a shareholder in HDFC Securities Ltd) is associated with this issue in the capacity of Bankers to the issue and Refund Bankers and will earn fees for its document. This report is intended for Non institutional Clients only. services. This report is prepared in the normal course, solely upon information generally available to the public. No representation is made that it is accurate or complete. Notwithstanding that HDFC Bank is acting for REC, this report is not issued with the authority of REC. Readers of this report are advised to take an informed decision on the issue after independent verification and analysis.