• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

C. Shivkumar

Bangalore , Nov. 21

WITH any further softening of interest rates becoming increasingly remote, State utilities and public sector companies have started rushing to financial institutions (FIs) and banks to enter into debt restructuring and swapping of high-cost loans.

Banking sources said that many State utilities, including those from Karnataka, Gujarat, Maharashtra and Andhra Pradesh, have suggested to the FIs that they are prepared to enter into a debt restructuring on the basis of mutually beneficial terms and conditions.

None of these conditions have been mentioned clearly, though at least two of the States have indicated that they are prepared for prepayment on the basis of current market interest rates.

This means that the States would have to fork out a substantial premium over and above the redemption payments. In return, the States have sought a waiver of penal interest rates and stretching the maturing of the refinancing terms for the new loans to be extended. Karnataka has also indicated that it will not be in a position to extend funded sub-sovereign guarantees. States have also indicated that they are prepared to assign a portion of their central tax receivables to the new lenders as a default security mechanism.

However, for this kind of security mechanism, the States have sought that lending terms be on the same lines as State development loans.

Some utilities have postponed any restructuring, instead opting to defer the payments of interest and principal on some of the loans, anticipating a further softening of yields.

This expectation has now vanished during the last few weeks after the peak season credit policy announcement.

Besides non-food credit has also picked up during the last three months.

Further, the sources said that the rush for the restructuring of the debts was also triggered by the new notifications issued by the Securities And Exchange Board of India (SEBI), which has imposed prudential limits on mutual funds. In addition, restrictions have been placed on issue of bonds through private placement. As a result, yields for corporate/State Government securities have been driven up. Yields on State Government-guaranteed securities are close to about 600 basis points over comparative sovereign yields. Ten-year sovereign yields are in the region of 5.10 per cent.

Article E-Mail :: Comment :: Syndication

Stories in this Section
Anna varsity biotech centre pins hopes on industry tie-ups

Copyright © 2003, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line