In An Unusual Move, PFC Scraps Two Bond Issuances Worth Rs 6,000 Crore

At a time when bond yields have touched a three-year low, frequent issuer Power Finance Corp. scrapped two long-term bond issuances worth Rs 6,000 crore, as there was limited interest from investors to bid for tight pricing, two merchant bankers told NDTV Profit.

The state-owned entity withdrew its June 2035 zero-coupon bond issue on the back of higher-than-expected yield levels. While the company expected a coupon of around 6.30%, the cut-off was in the range of 6.50-6.55%.

According to a bid book accessed by NDTV Profit, PFC received 59 bids worth Rs 5,763.15 crore in the range of 6.35-7.01%.

This is a surprising move, as this issue was expected to have heavy demand from investors given its tax efficiency. The structure is designed such that the entire income received from investors will be considered under long-term capital gains tax instead of interest income.

A zero-coupon or deep-discount bond is a security sold at a discount of over 20% from its face value. PFC had received a special approval from the government in March to issue zero-coupon bonds worth Rs 10,000 crore.

Another issue that PFC withdrew was the April 2040 bond, wherein the company was expecting a coupon of around 6.95-7.00% and the actual cut-off was around 7.07%.

For this issuance, PFC received 64 bids worth Rs 2,713 crore in the range of 6.81-7.1%, another bid book accessed by NDTV Profit showed.

In both cases, there was not enough interest in the market to bid for tighter levels. The long end of the curve is not seeing much interest from investors, a senior merchant banker said.

This has come as yields have fallen across the segments on the hope of further rate cuts and ample liquidity in the banking system, flattening the three- and five-year corporate bond yield, which was inverted for an elongated period of time.

Currently, the yield on three-year bonds issued by the National Bank for Agriculture and Rural Development — considered a benchmark in the corporate bond market — is at 6.91%, five-year at 6.92% and 10-year at 6.97%.

Typically, yields on corporate bonds mirror those of sovereign government securities. Last week, the yield on the 10-year benchmark Indian government bond touched over a three-year low at 6.29%.

As of Wednesday, the yield on the 10-year benchmark government bond was at 6.35%.