PFC bond issue extended on poor demand

Written by Aftab Ahmed | Mumbai | Updated: Dec 22 2012, 08:22am hrs
Power Finance Corporation (PFC) has extended tax-free bond sale closing to December 27 from December 21 as its issuance remained undersubscribed, according to sources involved in the deal. The company could raise just over R590 crore by Friday. The state-backed company tranche issue is for R1,000 crore with a greenhouse option of Rs 3,590 crore.

According to PFC executive, most of the demand came from retail and high net worth individuals, which constituted over R300 crore of the current raise, while demand for the paper from qualified institutional buyers (QIBs) and corporates was weak.

According to the another source, PFC extended closing by a weak as it hopes that investors who have locked in their funds in recent initial pubic offerings by Bharti Infratel, PC Jewelers and CARE Ratings India, will invest in the tax-free bond of the company after they get their sum that was not allotted to them in the issue.

This is the second disappointing tax-free bond issuance after Rural Electrification Corp (REC) could raise only about R2,100 crore, less than half of R4,500 crore it intended to raise. Two back to back tepid responses has caste doubts if the 10 infrastructure finance companies will be able to raise R53,500 crore allowed by the government through the tax free bond route.

I dont think government target is achievable at the rate things are going on, said a PFC executive, who did not want to be named, adding low coupon rates could be a factor for this tepid response. Last fiscal, PFC raised R5,000 crore through the public issue of tax-free bonds with coupon rate of 8.2%-8.3% for 10 and 15 years term, respectively. The coupon rate offered for this issue stands at 7.22% and 7.38% per annum for 10 and 15 year maturities, respectively.

On November 6, government permitted infrastructure companies to sell a total of R53,500 crore worth of tax-free bonds lower than the current fiscal years budget projection of R60,000 crore for such bonds but more than the R30,000 crore raised in last fiscal.

Another source involved directly with the deal but not authorised to speak to the media said that a contentious tax exemption clause is keeping the QIBs away, and will also hamper the issuances from Infrastructure Finance Company Ltd (IIFCL) and Housing and Urban Development Corporation (Hudco).

The response from QIBs is not good at all as banks are not comfortable with the Section 14 (a) which takes away their tax benefit, a source involved in the deal said.

IIFCL is also launching its issue on December 26 and does not expect the response to be overwhelming.