Funding Power

PFC’s maiden public issue of NCDs elicits a positive response

In a key recent fundraising deal, power sector financier Power Finance Corporation Limited (PFC) successfully tapped retail investors through a Rs 50 billion public issue of secured, redeemable non-convertible debentures (NCDs). This was PFC’s maiden taxable issuance to individual buyers and the first such by a power sector PSU. The issue was subscribed nearly nine times, and PFC raised Rs 44.2 billion from it.

Details of the bond issue

The issue opened on January 15, 2021. The base issue size was Rs 5 billion. The NCDs had a face value of Rs 1,000 each. The Tranche I issue offered tenor options of 3, 5, 10 and 15 years. The three-year tenor NCDs in Series I had fixed coupon rates of 4.65-4.8 per cent per annum, while the five-year tenor NCDs in Series II had fixed coupon rates of 5.65-5.8 per cent per annum. The 10-year tenor NCDs offered options of both fixed and floating rates of interest, with the fixed coupon rates being 6.63-7 per cent per annum, and the floating coupon rate being based on benchmark Fixed Income Money Market and Derivatives Association of India 10-year G-Sec (annualised) plus a spread of 55 basis points to 80 basis points, subject to floor and cap rates, depending on the category of investors. The 15-year-tenor NCDs offered a range of fixed coupon rates, with a maximum coupon rate of 7.15 per cent per annum. The issue was open for four categories of investors – institutional, non-institutional, high net worth individuals, and retail individual investors.

The first tranche of Rs 50 billion, including a Rs 45 billion greenshoe option, was scheduled to close on January 29, 2021. Given the overwhelming response, the issue had to be closed on January 18, 2021, the second day of trading, due to oversubscription on the Bombay Stock Exchange (BSE). According to BSE data, subscribers applied for 44,776,348 bonds or NCDs of Rs 1,000 each, against the 5 million bonds (with 45 million NCDs under the greenshoe option) on offer.

Other company highlights

PFC maintained its track record of consistent financial performance. It recorded a total consolidated income of Rs 184.35 billion for the quarter ended December 2020 – an increase of 16.14 per cent over the Rs 158.73 billion it recorded in the corresponding period of the previous year. Its net profit increased by 17 per cent and stood at Rs 39.63 billion for the quarter ended December 2020, as against Rs 33.87 billion in the same period of the previous year. In addition, due to the resolution of stressed assets, the company has recorded a reduction in its net non-performing asset ratio from 3.56 per cent in the quarter ended December 2019 to 2.12 per cent in the quarter ended December 2020. Further, under the Atmanirbhar Bharat discom liquidity scheme, PFC and its subsidiary REC Limited have together sanctioned Rs 1,354.97 billion and disbursed Rs 460.74 billion so far.

In another borrowing highlight for the company, in February 2021, PFC raised $500 million through the issuance of dollar-denominated bonds under the Reg S route, with a fixed maturity of May 16, 2031. The bonds have a fixed coupon of 3.35 per cent per annum. PFC’s order book amounted to around $2.55 billion, achieving an oversubscription of 5.1 times. This is the longest-tenor bond issuance from India yet in 2021. According to the company, despite the challenging global pandemic situation, PFC’s bond offer attracted wide participation from international investors. The deal concluded at very attractive terms, reflecting the confidence of investors in PFC’s business and its credit profile, as well as the Indian power sector’s growth story, noted the company in an official release.

The way forward

A significant percentage of PFC’s rupee-denominated borrowings are raised through the issuance of privately placed bonds in India. As of March 31, 2020, PFC had outstanding borrowings aggregating Rs 1,966.14 billion and Rs 570.98 billion in the form of bonds (including rupee-denominated infrastructure bonds) and rupee-denominated term loans respectively. According to the company, the NCD issue is a step towards further diversification of its sources of funds, and is intended to tap the wider retail taxable bond segment.

The funds mobilised from the NCD issue are expected to be used for on-lending to the power sector, besides fulfilling some of PFC’s obligations under the recently announced Atmanirbhar stimulus package. Going forward, with PFC having already filed a shelf prospectus to exhaust the entire shelf limit up to Rs 100 billion for NCDs, the company could roll out the Tranche II issue in the current fiscal itself.

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