By Divya Patil

Two Indian state-owned lenders withdrew rupee-denominated debt sales as fears of an additional government borrowing in the wake of the $20 billion tax-cut booster led to a spike in financing costs.

Power Finance Corp. pulled a sale of three-year notes of as much as 50 billion rupees ($705 million) Friday and Bank of Baroda delayed its plan to sell as much as 16.50 billion rupees perpetual debt on Monday. Coupon bids received by both issuers topped their expectations, people familiar with the matter said.

“Due to a surprise change in the government’s policy regarding corporate tax during the course of our issuance, there was a lot of uncertainty in the market,” Kamal Mahajan, head of treasury and global markets at Bank of Baroda said by email. “We expect a better rate when the market stabilizes.”

The average yield on top-rated 10-year corporate bond jumped 15 basis points Friday to 7.94 per cent, the steepest gain since January, data compiled by Bloomberg show. The surge mirrored a spike in sovereign bonds after the unexpected stimulus raised the specter of missing deficit targets. On Monday, rates fell five basis points to 7.89 per cent.

Indian Renewable Energy Development Agency Ltd., the lone company that priced its notes after the tax cuts were announced, had to pay a coupon rate of 8 per cent. That’s higher than the weighted average coupon of 7.89 per cent on all its rupee notes. It priced 10 billion rupees by 10-year bonds on Friday.

Focus now turns to the pricing of bonds from REC Ltd. on Wednesday. The state-run lender has sought bids for as much as 27 billion rupees of September 2023 and 10-year bonds. ONGC Petro Additions Ltd. also sought bids on the same day with plans to raise as much as 5 billion rupees.

Key Points: