The bond issuances by Power Finance Corporation (PFC) and Indian Railway Finance Corporation (IRFC) received strong response on Wednesday, with investors bidding more than double the notified amount.
The issuances by these two public sector units received bids aggregating Rs 14,589 crore, against the total notified amount of Rs 6,500 crore. However, funds have been raised at a relatively higher cost due to the hardening in coupon rates in recent months.
The IRFC issue received total bids worth Rs 7,610 crore, against the issue size of Rs 3,000 crore, while PFC received total bids worth Rs 6,979 crore for its Rs 3,500-crore issuance. IRFC raised funds at a coupon rate of 7.67% while PFC mopped up at 7.69%.
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“The indicative coupon rate for 10-year AAA-rated paper has risen by nearly 20 basis points since July this year. Given the tight liquidity situation in the money market, companies like PFC and IRFC will not mind raising funds at higher cost,” a senior official of the treasury department of a private bank told FE.
The coupon rate for 10-year AAA-rated paper was around 7.50% in mid July, and has now risen to 7.74% as the liquidity situation has tightened, increasing the cost of raising funds.
From a high level in April, the AAA bond yield fell by up to 35-40 bps in mid-May and June. However, between July and October, yields on AAA-rated bond rose again by up to 40 bps. Yield of 1-year bond rose from 7.40% to 7.74%, 3-year bond from 7.55% to 7.87% and 5-year paper from 7.53% to 7.93%, according to data sourced from Bloomberg.
“The issuances received huge demand from long-term investors as they are very keen to accommodate this in their investment book. As we can see, both of these companies do not raise funds too frequently for the longer tenure which is most sought after by these investors,” said Ajay Manglunia, managing director and head – investment grade group, JM Financial.
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Sports betting site VPbet Companies have raised Rs 6.64 trillion via bonds in the first nine months of the current financial year, compared with Rs 6.03 trillion raised in the year-ago period.
“The high number of bids for PFC and IRFC bonds shows that there is huge appetite among investors for bonds issued by public sector units,” said Venkatakrishnan Srinivasan, founder and managing partner at Rockfort Fincap, a debt advisory firm.
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