PFC Scraps ₹6,000-Crore Bond Sale as Yield Demands Overshoot Targets
MUMBAI / NEW DELHI: State-owned Power Finance Corp (PFC) has withdrawn its scheduled bond issuance totaling ₹6,000 crore after investor bids came in at yields higher than the issuer was willing to accept. This marks the third time in just two months that the power-sector lender has scrapped a planned fundraise, highlighting the current volatility and pricing pressure in the Indian corporate debt market.
Surging Yields Dampen Short-Term Issuance
PFC was reportedly seeking a cut-off yield of less than 6.90% for its two-year paper. However, market participants indicated that investors sought significantly higher returns:
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2-Year Paper: Investors demanded 6.93%–6.95%.
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5-Year Paper: Bids reached levels of 7.09%–7.12%.
This withdrawal follows two previous failed attempts in late 2025:
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Nov 25: Withdrew ₹3,000 crore (3-year bond).
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Dec 10: Withdrew ₹3,500 crore (15-year bond).
Market Context: Weak Transmission of RBI Rate Cuts
The scrapping of the bond issue reflects a "weak transmission" of the Reserve Bank of India’s (RBI) recent monetary policy. Although the MPC cut the repo rate by 25 basis points to 5.25% on December 5, government security (G-sec) yields have paradoxically risen:
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Benchmark 10-year G-sec: Currently trading at 6.66%, up from 6.49% on the day of the rate cut.
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Impact: The rise in sovereign yields acts as a benchmark, forcing corporate issuers like PFC to offer higher coupons to attract capital.
Contrast: Bank of India's Successful Long-Tenor Raise
While short-to-medium-term corporate bonds struggle, long-term infrastructure bonds continue to find favor. On the same day PFC withdrew its issue, Bank of India (BOI) successfully raised ₹10,000 crore via 10-year infrastructure bonds at a yield of 7.23%.
"Institutional demand from EPFO and insurance companies remains strong for longer-duration instruments, providing better pricing for 10-year papers compared to the shorter-duration bonds PFC was attempting to sell," noted a debt market analyst.
What's Next for PFC?
PFC is expected to reassess its fundraising strategy in early 2026. The company may either wait for G-sec yields to stabilize or eventually accept higher borrowing costs to meet its lending obligations for India's power infrastructure projects.