Rate Cut effect: PFC, Sidbi plan to raise ₹11,000 crore from bond market

PFC had earlier withdrawn a Rs 3,000 crore three-year bond issuance on November 25 due to elevated corporate bond yields

Activity in the corporate bond market is set to gain momentum following a 25-bp policy repo rate cut by the rate-setting panel of the Reserve Bank of India (RBI). State-owned Power Finance Corporation (PFC) and Small Industries Development Bank of India (Sidbi) are planning to raise up to ₹11,500 crore through bonds on Tuesday as issuers expect borrowing costs to ease.

 

PFC had earlier withdrawn a ₹3,000-crore, three-year bond issuance on November 25 due to elevated corporate bond yields.

 

Some issuers had chosen to tap the market ahead of the RBI’s monetary policy committee (MPC) meeting, expecting long-term yields to remain stable, while others cancelled planned deals amid pricing mismatches.

 

 

Post-policy sentiment has improved even though yields have not softened meaningfully. The repo rate cut, along with the RBI’s announcement of Open Market Operations (OMO)s and INR–USD swaps, has boosted confidence that liquidity conditions will remain supportive.

 

The central bank has announced liquidity measures through OMOs and forex buy-sell swaps. OMOs will involve the purchase of Government of India securities worth ₹1 trillion in two tranches of ₹50,000 crore each, on December 11 and December 18. Additionally, a USD/INR buy-sell swap of US$ 5 billion for three years will be held on December 16.

 

In this backdrop, more issuers are preparing to enter the market promptly. Several are eyeing long-tenor bonds to attract provident and pension funds, which typically see higher inflows during this period and often invest early to meet allocation norms.

 

Given these dynamics, a strong issuance pipeline from public sector enterprises and large banks is expected as they move quickly to tap available demand.

 

“Many issuers are now preparing to access the bond market immediately. Several are also planning long-tenor issuances aimed at attracting provident and pension fund flows. These funds typically see larger inflows during this period, and some of the major ones prefer to deploy capital in advance to meet regulatory and asset allocation requirements,” said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP.

 

In October, companies raised more than ₹17,500 crore through corporate bonds. Bharti Telecom alone raised ₹10,500 crore through two tranches, while other borrowers included Bajaj Finance, Aditya Birla Capital, Poonawalla Fincorp, and Signature Global.

 

Through November, several PSU financial institutions, including Sidbi, PFC, National Bank for Agriculture and Rural Development (NABARD), and Indian Railway Finance Corporation (IRFC), lined up sizeable issuances totalling close to ₹24,000 crore as part of their regular funding plans. However, the actual amount raised was much lower, at a little over ₹14,000 crore. This was mainly because issuers grew cautious as yields on shorter maturities stayed elevated, prompting them to postpone or trim some of the short-term tranches.

 

“There will be a mix of long and short tenure issuances in the coming mix with higher allocation to longer tenures,” said a dealer at a state-owned bank. “The pension funds have been sitting on large funds that they would like to deploy now, which will lead to good demand,” he added.

 

Longer-tenor issuances, on the other hand, continued to find solid demand from investors such as pension, provident, and insurance funds. PFC, for example, went ahead with a 10-year bond issuance that cleared at a coupon of 7.08 per cent. Other PSU NBFCs also saw healthier bidding for their long-dated bonds, reflecting investor preference for duration over relatively expensive short-term borrowing rates.