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BL Research Bureau

The issue of special government bonds to 22 fertiliser companies by the Government in lieu of cash subsidy, may not have any near-term positives for the companies in question. But it does address the problem of recurring uncertainty and delays in subsidy payment. With selling prices capped at levels that are much lower than production costs, a substantial portion of the realisations for fertilizer makers come in the form of subsidy receipts from the Governments.

The “Government of India Special Bonds” to be issued against fertiliser sales, carry an 8.3 per cent coupon rate and a 15-year tenor running to the year 2023. The bonds are tradeable and eligible for investment by insurance companies, provident funds and the like, thus offering a route for fertilizer companies to encash these bonds by selling them to an interested institution.

However, the fairly long tenor of the bonds and the lack of depth in this section of the debt market, may place cash-strapped fertilizer makers at a disadvantage, when it comes to finding ready takers for these bonds. The high cost of sourcing working capital, in a scenario of rising input prices, may continue to weigh on the weaker companies in the sector.

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