Financial Daily from THE HINDU group of publications
Thursday, May 20, 2004
Financial Daily from THE HINDU group of publications Thursday, May 20, 2004 |
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Corporate
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Corporate Bonds Sardar Sarovar to pre-pay bonds Lyla Bavadam
Mumbai , May 19 THE Sardar Sarovar Narmada Nigam Ltd has announced its intent to pre-pay the 20-year Deep Discount Bonds. The move will save the Nigam about Rs 6,100 crore but has been poorly received by the bond holders. The PSU has called a meeting of its bond holders on May 28 to decide the matter since bond holders exclusively hold the rights for redemption. It was a Rs 300-crore public issue with the understanding that the Nigam would be allowed to retain 25 per cent more than the issue size in the event of it being oversubscribed. The bonds were issued in November 1993 at a discounted price of Rs 3,600 and interest at the rate of 17 per cent payable in slots of seven, 11, 15 and 20 years. Thus, after 20 years i.e. in January 2014, a bond holder could expect Rs 1,11,000 per bond. While the bond holder reserves the right to redeem the bonds in the seventh, 11th or 15th year the Nigam does not have the right to unilaterally call back the bonds. The first slot payment was initiated in September 2000 when merely 6 per cent bond holders availed themselves the offer to redeem their bonds. At the time, the Nigam paid Rs 53.23 crore. Now the Nigam wants to pre-redeem the bonds saying that the stated rate of interest is too high and they will be unable to pay the investors. The call back revives accusations that the Sardar Sarovar Project being financially ill conceived. The CAG report for the year ending March 31, 2001, for Gujarat (Commercial) has come down heavily on the Nigam. In its concluding remarks it says, "The SSP (Sardar Sarovar Project) was approved without outlining the sources of raising funds and cost element towards borrowing. The Company borrowed in an ad hoc manner and cash flow was not worked out accurately... The Company needs to take immediate steps to revise cost estimates of the project, plan and coordinate resources of funds in the most economical manner and avoid unnecessary losses." The warnings of the CAG were ignored. So was a 1996 directive from the Gujarat Government to form a sinking fund from their own resources to pay back investors. The Gujarat Government stands guarantor for the bonds. In the event of the Nigam being unable to pay investors, it will be the State that has to bear the brunt of bond redemption. In 2014, when the bond matures this would amount to Rs 7448.41 crore and would have to come out of the State's budget. The current State budget is Rs 8,100 crore. Given the fact that in the last 10 years the Gujarat State budget has increased manifold it is possible that by 2014 the State's annual plan could be Rs 16,200 crore. If the burden of the Nigam were to be cleared by the State it would mean that 40 per cent to 45 per cent of the Budget would go towards this debt repayment — a diversion of State funds which will cripple the State. This resource crunch has been worsened since the SSP has not realised any revenue from the water diverted for drinking purposes. It is also unlikely that any significant revenue will be collected by the Nigam in the next five years as the upstream dams will not be ready to release the much promised surplus water which alone will be able to fill the irrigation canals. However, there is an indication from mid-level Nigam officials that the company has no intention of eating into the State Budget. Instead, there is a plan to float another bond issue and with the money pay back the Deep Discount Bond investors. The Nigam seems to have made a habit of this. Prior to 2000-01 when 6 per cent of the DDB bond holders redeemed their bonds, the Nigam had taken out a new issue of Rs 1,000 crore in September 1999. This was oversubscribed and the Nigam exercised its right and retained the Rs 1,064.22-crore. And now, in anticipation of investors refusing to pre-redeem their bonds the Nigam is once again making plans to pay back lenders by increasing its market borrowing.
More Stories on : Corporate Bonds | Maharashtra
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