PFC's Withdrawals Could Hit New Zero-Coupon Debt Sales

These bonds, often issued by govt entities, are primarily used for infrastructure financing

- Abirami Sekar

Issuer interest in zero-coupon bonds (ZCBs) faces a potential setback after state-run Power Finance Corporation (PFC) pulled its planned offering for a second time in a row, reportedly due to a mismatch in yield expectations, experts said.

Following approval from the Central Board of Direct Taxes (CBDT) on 11 March 2025, PFC decided to launch its 10-year zero-coupon bonds, according to an official notification, with a base issue size of ₹1,500 crore and a green shoe option to raise additional ₹1,500 crore in the event of high demand from investors.

Business Standard reported on Monday, citing sources, that PFC has withdrawn its zero-coupon bond issuance for the second time in just over a month, as investors demanded higher yields than what the issuer was willing to offer. PFC had previously withdrawn the issuance on 30 April 2025.

"The subdued response on Monday (to the PFC bond issuance) from both arrangers and investors suggests that issuers may need to revisit their strategy, timing, and pricing assumptions. Although CBDT approvals provide flexibility over the issuance window, market conditions will ultimately dictate whether ZCBs can sustain their relevance," said Venkatakrishnan Srinivasan, founder and managing partner of financial advisory firm Rockfort Fincap LLP.