PFC withdraws zero-coupon bonds issuance due to weak investor demand

PFC shelves bond issue for the second time in weeks as investors demand higher yields, citing losses on REC's earlier ZCB issue and shifting bond market dynamics

State-owned PFC has withdrawn its planned issuance of zero-coupon bonds for the second time in over a month, as investors demanded higher yields than what the issuer was willing to offer, sources said.

 

PFC was eyeing to raise up to ₹2,000 crore through zero-coupon bonds, which had a base issue of ₹500 crore and a green shoe option of ₹1,500 crore. PFC received 28 bids worth ₹1,470 crore, sources said, adding that the bids were in the range of 6.20 per cent to 7.02 per cent.

 

“PFC was aiming for a lower yield cut-off, similar to REC. However, the market demanded a higher cut-off, having incurred losses on the REC zero-coupon bond. As a result, the issue was withdrawn,” said a market participant, on the condition of anonymity.

 

 

REC, in September last year, had raised ₹5,000 crore through zero-coupon bonds, at an effective yield of 6.25 per cent per annum. The issue saw overwhelming demand, with the bonds being oversubscribed by nearly seven times the issue size of ₹5,000 crore.

 

On April 30, PFC shelved its bond issuance plan amid weak investor demand in the market due to oversupply of bonds, which led to unattractive prices. PFC was planning to raise ₹6,000 crore through zero-coupon bonds. 

 

A zero-coupon bond is a type of debt instrument that does not pay periodic interest. Instead, it is issued at a deep discount and redeemed at its full face value upon maturity, with the profit being the difference between the purchase price and the maturity value.

 

“Zero-coupon bonds issued by state-run infrastructure companies appear to be losing steam, with the latest offering facing weak demand and ultimately being withdrawn. The instrument, once seen as a modern-day replacement for phased-out tax-free bonds, is now struggling to retain investor interest amid shifting bond market dynamics,” said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP, adding that sentiment has shifted sharply in recent months.

 

“Since April 2025, benchmark yields have softened in response to monetary policy actions, surplus liquidity, and a series of rate cuts and CRR cuts by the Reserve Bank of India. As the yield curve shifted downward mainly in short-term instruments, the relative attractiveness of earlier-issued long-term 10-year ZCBs waned. These bonds, priced aggressively last year in the primary market, are now trading at wider yields in the secondary market. This has left early investors, including arrangers, grappling with mark-to-market pressures and reduced exit options due to thin trading volumes,” he added.

 

Meanwhile, PFC raised ₹4,480 crore through two separate tranches of varying maturity. It raised ₹2,500 crore at a cut off 6.27 per cent through bonds maturing in two years. Additionally, it raised ₹1,980 crore at a cut-off of 6.59 per cent through bonds maturing in five years.