Power Finance Corporation’s (PFC) tax-free bond issue received an overwhelming response on Tuesday with the company managing to raise the entire quantum of R300 crore through its 10-year bond issue at 7.16%, market sources said.
PFC was seeking bids for its R300-crore issue through bonds with tenures of 10, 15 and 20 years at fixed coupon rates of 7.16%, 7.39% and 7.45%, respectively, according to market participants.
“PFC received an overwhelming response across all tenures and, since the 10-year issue had the lowest yield at 7.16%, the company decided to raise the entire quantum through this tenure,” a bond arranger said.
Market sources said just two arrangers underwrote the entire quantum of R300 crore at a price of R100.07 — taking the H1 bid value to seven paise above the face value of the bond.
PFC has been allotted R1,000 crore of the tax-free bond limit this fiscal. According to the government notification, at least 70% of the limit allotted has to be raised through public issue while the rest could be raised through private placement.
Bond market experts had indicated that the public issue of tax-free bonds would start in August.
Rural Electrification Corporation (REC) and Indian Railway Finance Corporation (IRFC) might be soon tapping the bond market for issuing their quota of tax-free bonds, sources said. IRFC has been allotted a limit of R6,000 crore, while REC has been given a limit of R1,000 crore, according to the notification.
Tax-free bonds made a comeback this fiscal after remaining absent in FY15. They were introduced in 2011-12 with an overall limit of R30,000 crore to boost infrastructure spending.
In 2012-13, the limit was doubled to R60,000 crore. However, companies managed to raise just R18,000 crore through these bonds. In FY14, the limit was kept at R50,000 crore against which companies borrowed R49,200 crore.