Power Finance Corporation, Sidbi scrap ₹11,500 crore bond issues

Despite a recent RBI rate cut, investor bids stayed above issuer expectations, forcing PFC and SIDBI to cancel planned bond raises amid rising yields and market volatility

State-owned Power Finance Corporation (PFC) and Small Industries Development Bank of India (Sidbi) scrapped their scheduled bond issuances totalling ₹11,500 crore on Tuesday, after investor bids in the auction came in at yields higher than what the issuers were willing to accept, said sources aware of the development. 

PFC was in the market to raise ₹3,500 crore (a ₹600-crore base issue and a ₹2,900-crore green shoe) through 15 year bonds, while SIDBI was looking to raise ₹8,000 crore (a ₹2,000-crore base issue and a ₹6,000-crore green shoe) through bonds maturing in 3 years and 4 months. 

Market participants said that bids have not softened in line with expectations, underscoring the muted transmission of the recent 25-bps rate cut by the Reserve Bank of India’s Monetary Policy Committee and persistent pressure at the shorter end of the curve. 

According to sources, PFC was targeting a coupon of around 7.12 per cent, but investor bids came in higher, between 7.16 and 7.21 per cent. Similarly, Sidbi was aiming for a cut-off of around 6.75 per cent, while bids ranged between 6.82 and 6.86 per cent. 

Market participants said that order books were strong, but bids landed at slightly higher yields because investors were aligning pricing with the revised sovereign benchmarks, not the lower levels issuers had priced in. 

This resulted in a clear pricing dislocation, demand remained robust, but the yield reset created a mismatch between market-implied levels and issuer expectations. 

Earlier, in the last week of November, PFC had a ₹3,000 crore, three-year bond issuance due to elevated corporate bond yields, and on the expectation of better rates following a rate cut. 

According to market insiders, after the RBI’s MPC announced a 25 bps rate cut, several large corporates were looking to tap the market in anticipation of immediate pricing advantages. 

Instead, yields on the benchmark 10-year government bond inched up, and corporate bond yields moved almost in tandem. 

Since investors typically price corporate paper off the government bond curve, the upward shift in Gsec yields led to an automatic repricing in the corporate bond market as well.

 

The yield on the benchmark 10-year government bond has inched up by 10 basis points in the last two days after the rate cut. 

Additionally, market insiders said that issuers approaching the market now have limited options: Either wait for yields to stabilise and sentiment to improve, or accept bids at prevailing market-aligned levels, where investor demand remains healthy but remains firmly anchored to movements in the government bond curve. 

“Even after the rate cut, the yields have moved up by 10 bps to 12 bps, and the issuers were not willing to accept the high bids,” said a market participant. 

“They are not in a hurry, so they would wait for the volatile environment to settle, then they might come back to the market,” the person added. 

“Investors naturally price corporate bonds off the sovereign curve, so the moment G-sec yields inched higher, investor bids in the corporate market shifted upward as well. Even though order books were strong, bids came at slightly higher yields because investors were marking pricing to the changed sovereign level, not to the lower levels issuers were hoping for,” said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP. 

Despite the RBI’s attempt to provide a supportive backdrop through the 25-bps rate cut, OMO purchases, and USD-INR swap operations, which together signalled comfortable liquidity, the measures did not translate into lower 10-year yields. 

“Both SIDBI and PFC waited for lower levels, but market conditions simply didn’t allow bids to come down,” said a market participant. 

“The 25-basis-point rate cut isn’t reflecting in yields right now, and it can’t, at least for the moment. In this environment, we’re likely to continue seeing issuers gravitate toward the longer end of the curve, though only a few borrowers actually have demand there,” the person added. 

A combination of global yield volatility, rupee weakness, ongoing uncertainty around US tariffs, investor positioning, and steady sovereign bond supply kept the benchmark elevated and prevented any near-term softening. Some issuers had anticipated this period of post-policy turbulence and chose to borrow before the policy when yields were relatively stable. 

Waiting for lower yields

• PFC was eyeing ₹3,500 crore; Sidbi was looking to raise ₹8,000 crore
• This is PFC’s second planned bond issuance withdrawalin the past few weeks on expectations of tighter yields
• Despite the 25-bp cut, corporate bond yields have stayed elevated as benchmark Gsec yields have risen 10 bps in two days
• Issuers are likely to gravitate towards longer end of the curve, though only a few investors actually have demand there