PFC shelves bond sales of Rs 2,500 crore as investors demand higher rates

MUMBAI: State-owned Power Finance Corporation (PFC) on Monday called off its proposed bond sales for about Rs 2,500 crore after investors demanded higher rates on the back of withering investment appetite ahead of the year-end.

The triple-A rated company was offering the bond sales in two formats: bullet payment with a 10-year maturity, and strip bonds where an investor has to buy all securities with 5-, 10- and 15-year maturities at a uniform rate, three people familiar with the matter told ET.

PFC could not be contacted immediately for its comments.

The company, according to market sources, was ready to offer 8.65% rate with 10-year maturity and five basis points higher than that in the strip bonds. It received only one bid for Rs 250 crore at 8.65% in the 10-year bullet category, while there were other bids for Rs 1,000 crore collectively at 8.68% for the same. For the strip series, PFC received a few bids at 8.7%. The company was looking to mop up anything between Rs 2,000 crore and Rs 3,000 crore.

In late evening, PFC hinted at issuing 10-year bonds only at 8.65% without any strip option. Two large domestic investors, including an insurer and a state-owned bank, have been approached for subscription.

“The apparent reason given for scrapping the issue was the unavailability of the company chairman to sign... but it was not the real case. They did not like the pricing,“ said one of the persons cited above, regretting the mismanagement. The person did not wish to be named.

Two weeks ago, PFC had raised around Rs 3,400 crore by selling bonds with 5-, 7- and 10-year maturities. The 10-year paper was priced at 8.48%.

The spread, or the gap between public sector corporate bonds and the benchmark government bond, has widened to 50-60 bps, said another executive. PFC's 10-year securities obtained 30-35 bps spread during the last issue for Rs 3,450 crore. “Ahead of the year-end, the demand for corporate bonds is limited to widening spreads,“ said Arun Srinivasan, senior vice-president, investments (debt), ICICI Prudential Life Insurance. “We expect the supply to extend to commence in the new calendar year.“

State-owned NTPC, PowerGrid Corporation are also expected to hit the market early next year. One large private sector housing company is also likely to tap the debt capital market with big bond sales.