“There was some volatility and we wanted the market to calm down before we could get back into it,” said Parminder Chopra, chairman and chief executive of Power Finance Corp. “But the main reason for issuing a government bond is to bring this issue to the attention of private investors, because we see it as a strong way to mobilize domestic funds.”
Debt mutual fund assets under management fell 6.5% in December as tax-related early redemptions led to sharp outflows, especially in short-term categories. Despite a rate cut by the RBI, rising bond supply pushed yields higher, leaving investors cautious with their maturity strategies. Analysts say the redemptions were largely tactical, driven by liquidity needs rather than credit concerns.
PFC will sell bonds with maturities of 5, 10, 10 years and 1 month, and 15 years. It offers an annual coupon of 6.85% to institutional investors and corporations for five-year bonds, and 7.00% and 7.05% for 10- and 15-year bonds, respectively. With the current public issuance, the state lender is actually reducing its financing costs by 10 to 25 basis points.
One basis point is one hundredth of a percentage point.
PFC canceled a five-year privately placed bond issue at the end of December with coupons ranging from 6.95% to 7.25%.
Companies retreated from raising debt after the yield on 10-year government bonds, which serves as a benchmark for corporate lending, rose about 10 basis points to 6.62% since the Reserve Bank of India cut rates in early December. PFC has also introduced a zero coupon option for investors with a tenure of 10 years and 1 month, which offers a return of 6.80% to institutional players and corporates, 6.85% to HNIs and 6.95% to retailers. This is the company’s first government bond issuance in 30 months.
The CMD also said that they have been tapping into the term loan market in recent times amid volatile interest rates in the bond market.
“Term loans are available at attractive rates and have been 50 to 70 basis points cheaper than bond yields,” Chopra said.
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