Power Finance Corporation shelves bond issuance plan amid lacklustre demand

Power Finance Corporation (PFC) has shelved its bond issuance plan amid weak investor demand in the market due to oversupply of bonds, which led to unattractive prices, said merchant bankers and people aware of the matter. PFC was planning to raise a zero-coupon bond and a 15-year bond worth ₹6,000 crore.

 

“Currently, there are no plans to go ahead with issuances unless the company gets desired levels. It will continue with its plan of raising funds when pricing in the market is lucrative,” said a person in the know. PFC did not reply to a mail in this regard till the time of going to press.

 

The person added that the yields were largely the same for a normal bond and zero-coupon bond, hence it was not lucrative for the company to accept the bids.

 

PFC received 59 bids worth ₹5,763.51 crore for the zero-coupon bond, maturing in 2035. For the 2040 bond, it received 64 bids worth ₹2,713 crore. For the zero-coupon bond, despite having tax benefits, the cut-off yield was in the range of 6.50-6.55 per cent against the expectation of 6.30 per cent. On the 15-year bond, the cut-off yield was 7.07 per cent against the expectation of around 6.95-7.00 per cent. 

 

A zero-coupon bond or deep-discount bond has no coupon payments, and is sold at a discount of over 20 per cent from its face value.

 

In March, PFC received the government's approval to raise up to ₹10,000 crore through zero-coupon bonds. Hudco got clearance earlier this month to raise ₹50,000 crore from such an issuance while half a dozen other companies have also approached the government for similar approvals.

 

The market is expecting more such bonds to come this year, leading to oversupply. Therefore, investors are not chasing such auctions, said bankers.