Investors make beeline for public issue of tax-free bonds from PFC

After NTPC’s public issue of tax-free bonds saw a massive response from investors, state-owned Power Finance Corporation (PFC) on Monday witnessed an overwhelming subscription of its public issue of debt to the tune of over 12 times the issue size, according to information provided by bond arrangers.

Against an issue size of Rs 700 crore, investors bid a whopping Rs 8,461.17 crore, with a majority of the interest coming from the Qualified Institutional Buyers (QIBs) and the corporate categories.

QIBs bid more than 21 times their allotted issue size of R70 crore while corporates bid more than 19 times their allotted quantum of Rs 175 crore.

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Ajay Manglunia, executive vice-president at Edelweiss Securities, said the reduction in the repo rate led to this massive response for the public issue of PFC’s tax-free bonds as the 50-bps cut will likely bring down the yields on forthcoming public issue of tax-free bonds.

“Power Finance Corporation (PFC) priced its public issue of tax-free bonds prior to the RBI’s credit policy on September 29. Although there was an expectation of a rate cut, investors had not expected a 50-basis-points reduction. As a result, PFC’s issue saw a massive response with investors expecting the yields on all forthcoming issues to be at least 15-20 basis points lower than this,” Manglunia said.

The yield on the tax-free bonds is calculated based on the G-sec yields prevailing over the last two weeks.

Market participants had earlier indicated that PFC’s public issue of tax-free bonds will have coupon rates of 7.36%, 7.52% and 7.60% on its 10, 15 and 20-year issues, respectively, for retail individual investors, while it will carry yields of 7.11%, 7.27% and 7.35% for institutionals, corporates and HNIs.

So far, only two companies have come our with public issue of tax-free bonds while all seven firms that have been permitted to issue these bonds in FY16 have already raised funds through the private placement route.

In the regular corporate bond market, state-owned Rural Electrification Corporation (REC) is set to come out with its long-tenure bond issue on Tuesday, according to bond arrangers.