Power Grid Corporation, Indian Bank raise Rs 5,000 crore each in single day

State-owned Power Grid Corporation of India Ltd (PGCIL) on Thursday raised Rs 5,000 crore by selling 10-year bullet bonds at a coupon rate of 7.08 per cent.

 

Bullet bonds are those where the principal is repaid as lump sum on maturity.

 

Separately, Indian Bank, also a public-sector entity, raised Rs 5,000 crore through 10-year infrastructure bonds at a 7.12 per cent coupon rate, sources said.

 

While PGCIL’s issue size was Rs 1,000 crore, with a greenshoe option of Rs 4,000 crore, Indian Bank’s issue size was Rs 2,000 crore with a greenshoe option of Rs 3,000 crore. (In a greenshoe option, the underwriter has the option of issuing more shares.)  

 

Both the bond issues have been rated “AAA” by domestic rating agencies. 

 

Market sources suggested lack of supply from public-sector entities in the past few weeks, and pentup demand from insurance companies, including the Life Insurance Corporation (LIC), and pension funds prompted the tight pricing of PGCIL’s bond issue.

 

Additionally, PGCIL issued the bullet bond after a long time, and the market lapped up the issue, sources said. 

 

PGCIL is a “Maharatna” whose main business is transmitting power. The company has diversified into telecom by leveraging its pan-Indian transmission network. 

 

According to sources, with Small Industries Development Bank of India (Sidbi) and PGCIL having issued bonds this week, and the National Bank for Agriculture and Rural Development (Nabard) looking to raise funds on Friday, it seems public-sector entities have sorted out what they need to do and the supply of bonds will resume but only after Diwali.

 

“The narrow spread over government securities (g-secs) in recent bond issues by Power Grid Corporation, Indian Bank, and State Bank of India (SBI) additional tier-I (AT-I) bonds reflects strong investor demand for high-quality corporate bonds,” said Venkatakrishnan Srinivasan, founder and managing partner, Rockfort Fincap LLP, adding that investors were increasingly accepting lower yields in exchange for the security of AAA-rated issuances.

 

“This demand is fuelled by abundant liquidity, especially among insurance companies, provident and pension funds, and mutual funds, which are seeking safer investment. Mutual funds, in particular, are competing for these bonds to optimise returns in a low-yield environment while managing credit risk,” he said.

 

Separately, sources have indicated Bank of India, a public-sector bank, is looking to tap the domestic debt market to raise Rs 5,000 crore in infrastructure bonds soon.

 

The bank previously raised Rs 5,000 crore through the same instrument at 7.54 per cent.

 

State-owned banks have been increasingly raising infrastructure bonds to support credit demand, especially from long-term infrastructure projects, at a time when deposit growth has been sluggish for them.  

 

Infrastructure bonds have a tenor of at least seven years and the proceeds are utilised by banks to fund long-term infrastructure projects. Banks benefit from infrastructure bonds because they do not have to meet regulatory requirements such as the statutory liquidity ratio (SLR) and cash reserve ratio (CRR), allowing them to optimise their liquidity management strategies.

 

India’s largest lender, State Bank of India, has so far raised Rs 20,000 crore through infrastructure bonds this financial year (FY25). Other state-owned banks, including Bank of Baroda, Canara Bank, and Bank of Maharashtra, have raised large amounts through this instrument.

 

According to market participants, insurance companies and pension funds are looking to invest in long-term paper, especially of higher-rated entities, given the nature of their business. Hence, there is so much demand for infrastructure bonds issued by state-owned banks.