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Tuesday, January 3, 2012

Power Finance Corp, National Thermal Power Corp, REC line up to tap pension funds in New Year

Power Finance Corp, National Thermal Power Corp and Rural Electrification Corp are likely to launch medium- to long-term infrastructure bonds in the first week of January to raise 3,000-5,000 crore each, people familiar with the matter said. The move is aimed at tapping pension funds, which are mandatorily required to invest a major chunk of their corpus in infrastructure bonds. 

State-run NTPC, India's largest power utility, is looking to raise funds through the issuance of bonds that will mature at the end of 10 years, said market sources. State-run REC is likely to issue 3-year, 5-year and 10-year bonds. 

Infrastructure finance company PFC will issue bonds for three and five years through private placements, as they are already borrowing for long-term through public bonds issuances, debt managers said. 

The bonds are likely to offer coupon rates around 9.63-9.64%, similar to what PFC offered on its 3-year and 5-year issuances in December, said debt market analysts. 

In December, PFC raised funds through 3-year and 5-year bonds at 9.63% and 9.64%, respectively. 

"The issuers will have to offer similar rates now, since yields on government securities have risen on market expectation of higher government borrowing," said a debt market analyst. 

The yield on 10-year bonds has risen marginally by 7-10 basis points since Monday. 

On Thursday, the yield on benchmark 10-year bonds closed at 8.53%, up 6 bps from the previous close. 

Pension funds receive interest payments from their investments in special deposit schemes in the first half of January, and bond issuers prefer to tap into these inflows. According to analysts, about 50,000 crore worth of inflows are expected from these interest payments for the fund houses this year. 

PFC will also come out with its tax-free bonds for retail market on December 31, offering 8.30% on 15-year and 8.20% on 10-year bonds. 

The issue comes close on the heels of National Highway Authority of India's (NHAI) tax-free retail bond issuance that made a successful debut on Wednesday. The bonds have so far received subscriptions worth about 25,000 crore. 

The issue is scheduled to close on January 11, 2012. 

Dealers said, going ahead, bond yields will rise despite the Reserve Bank of India indicating easing of policy rates as markets expect a further fiscal slippage of about 30,000-40,000 crore. 

"Further issuances of government securities could put some strain on the market, resulting in upward pressure on yields. As per the polls being conducted, expected slippage could be anywhere in the range of 30,000-40,000 crore," said an official from a large bond house. 

Issuers such as NTPC are expected to get finer rates, which could be about 15 basis points less than other issuers, since they are not very frequent issuers in the bond markets.

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