After approval of the Central Direct Tax Council (CBDT) on 11 March 2025, PFC decided to launch its ten -year bonds with zero coupon, according to the official announcement, with the basic issue of the issue £500 crore and the possibility of green shoes to increase the next £1,500 Crore in case of high investors’ demand.
The business standard reported on Monday and quoted the sources that PFC had withdrawn for the second time with a zero coupon bond for over a month because investors demanded higher returns than what the issuer was willing to offer. PFC previously downloaded the issue of 30 April 2025.
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“The Subdued Response on Monday (to the pfc bond issuance) from Both Arrangers and Investors Suggests That Issers May Need to Revisit Their Strategy, Timing and Pricking Assumions. Although CBDT Approvals Provide Flexibility Over the Isuance Window, Market Conditions Will Ultimatel Dictate Whether ZCBS Can Sustain Their Relevance, “Said Venkatakrishhnan Srinivasan, Founder and Managing Partner of Financial Advisory Firm Rockfort Fincap LLP.
Another state company Rec LTD increased last year £5,000 crore in bonds with zero coupon at an aggressive price, which led to other issuers to the queue to start such bond sales.
Srinivasan said the Rec problem, the price for 6.25% of the coupon, was about 61 basis points (BPS) below the ten-year yield of the government bond (6.86% per year at the time) and almost 80-90 BPS lower than comparable tax bonds from similar AAA publishers.
“At that time, the market participants recorded zero coupons bonds as a viable compensation for former bonds without tax, especially when the market also combined a bond (MLDS) as a tax savings tool,” Srinivasan said.
According to him, while G-SEC’s yields have softened significantly, powered by excess liquidity, consecutive cuts, and the attitude of RBI-profit on bonds with zero coupon (ZCB) paradoxically stiffened on the secondary market. He explained that this disconnection stems from poor liquidity of the secondary market in ZCB, which persists despite the total amount of systemic liquidity and monetary policy measures. As a result, investors and arrangers who offered aggressively on lower revenues last year on the primary market are now facing challenges.
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Bonds with zero coupon approved by CBDT are debt tools issued with a discount on the nominal value and redeemed at nominal value without regular interest. These bonds, often issued by government entities, are used primarily for infrastructure financing. CBDT approval provides them with specific tax treatment and classifies profits from redemption as long -term capital gains, which are generally taxed at a lower rate than normal income. Bonds with zero coupon are not approved by CBDT are issued by company and high -profile entities and fall into regular income tax rules. Thus, the revenues from these bonds are taxed according to the relevant income tax plate.
Before the release of PFC, the public sector businesses were quite interesting. According to Reuters in April, six state societies tried to issue deep discount bonds from the government. These include Indian Railway Finance Corp. (IRFC), Indian Renewable Energy Development Agency, India Power Grid Corp., Rec, Bank of India Small Industries Development Bank of India (Sidbi) and National Bank for Agriculture and Development Development (NABARD).
In addition, Housing and Urban Development Corporation LTD (HUDCO) received CBDT approval for bonds of zero coupons £5,000 crore, according to the official announcement. Indian Railway Finance Corporation Ltd, in May, also received approval from CBDT for issuing its ten -year bond with zero coupon with £10,000 crore to be paid for maturity. PFC and REC are among the government entities that have received CBDT approval.
E -maly sent to PFC, REC, IRFC, Power Grid, Sidbi and Hudco remained unanswered until the press time. Nabard refused to comment. Asked by the IRSY Plan for the upcoming issue of bonds with a zero coupon after the download of PFC, its spokesperson redirected the mint to a press release issued on Wednesday and said that the company has raised £2 005.90 Crore through a qualified institutional location (QIP).
The value of zero coupon bonds raised by private and public entities was at £44 009 crore in fy24 and in £32,184 CRORE in FY25, according to data from Prime Database. These data include both non -etified CBDT and non -rotated zero coupons. In FY25, the main issuers belonged to the Porteast Investment PVT. LTD, Reliance Capital Ltd, JSquare electric steel nashik pvt. LTD, except others.
Experts have stated that bonds with zero coupon approved by CBDT still offer structural benefits, such as favorable tax treatment of capital yield, risk of zero reinvestics and public sector entities with AAA evaluation. However, the lack of the depth of the secondary market and the declining relative value reduces the enthusiasm of investors.
“The zero coupon bonds offer revenues by issued with a discount and redeemed as a nominal value, and the internal return rate reflects what the investor earns if the bond is held in maturity. These bonds are considered debt for tax purposes. Gupta, with the leader of the Vice -President and the Group of Financial Value and in the financial values group. As a result, it is more tax -efficient than traditional debt products, especially for long -term investors in a higher tax group, “Gupta said.
Others also pointed out the tax advantage of these bonds and stated that bonds with zero coupon gain traction with individuals with a high value (pus).
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“These bonds also offer cash flow efficiency, because there is no payment during tenure and the whole bonds ripen in nominal value, which means that all interest payments are reinvested with the same yield,” said Suresh Darak, founder and CEO of Fintech BondBazaar.
He said that investors in this segment are willing to invest at regular intervals based on their needs in cash flows and income. Since these bonds are privately placed and listed, intermediaries on the primary market must apply and distribute them to pus on the secondary market.
“Since the yield is around 5.5-6%, it faces almost 2% of the agers to a negative transmission due to higher rates. This sometimes leads to a slightly higher primary return if the demand is distributed over the next few months.
(Tagstotranslate) Central Direct Tax Council (T) Rockfort Fincap LLP (T) Market Connected Bonds (T) Bonds Zero-Coupon Bonds (T) Indian Railway Finance Corp (T) (T) India India India India India India India India India India India India India India India India (T) India India India (T) India India India India (T) Indian. Corporation LTD (T) Reliance Capital Ltd (T) Porteast Investment PVT. Ltd
