State-owned Power Grid Corporation’s (PGC) subsidiary Vizag Transmission has raised R290 crore at a coupon rate of 8.90% through its five-year bonds on Monday, sources said.
PGC’s two subsidiaries — Vizag Transmission and NM Transmission company — were each looking to raise up to Rs 500 crore through the bond market.
“However, the management felt the rate of 8.90% is on the higher side, hence, they decided to go with only Vizag Transmission’s issue opting to defer NM Transmission’s bond issue,” said a a source, adding the management was targeting rates in the range of 8.50-8.75%.
These bonds are rated AAA (SO) — structured obligation — and are guaranteed by their parent PGC, according to a dealer. This might have resulted in a premium of 15-20 bps over the prevailing market rate for a 5-year bond of a AAA-rated PSU which is about 8.50-8.55%, he said.
A further premium of 15-20 bps could be attributed to the fact the subsidiaries are first time issuers and the bonds are unlisted, the source added.
Since May, there have been two major global sell-off in bonds that had pushed the yields on government securities higher, thereby, leading to a hardening of corporate bond yields.
The only time the rates cooled was in the run-up to the monetary policy when power finance corporation and power grid corporation had raised close to R3,000 crore each at coupon rates in the range of 8.35-8.40% through short and long tenure bonds, respectively.
Some companies that had decided to wait and watch expecting a softening in yields after a possible cut in repo rate in the June 2 credit policy are now facing non-conducive market conditions. Yields surged after the Reserve Bank of India said it front-loaded the rate cut, thereby, indicating the possibility of a long pause before the next reduction in rates.
Rural Electrification Corporation (REC) which was also looking to tap the bond markets in the near term has chosen to consider raising funds through commercial paper for the time being, sources indicated.