The Hindu Business Line : RBI allows trading in power bonds

The bonds were issued to Central utilities NTPC, NHPC, PowerGrid, Coal India and Neyveli Lignite by more than 20 State Governments against Rs 45,000 crore owed to them by their electricity boards.

A committee headed by Mr Montek Singh Ahluwalia had in 2001, suggested issuing the bonds as a solution to the financial problems of state electricity boards (SEBs). The Centre guaranteed the bonds on a promise from the states to reform the loss-making boards. It signed a three-way agreement with 27 states and the RBI for a one-time settlement of SEBs' dues in exchange for bonds for the utilities. It was then agreed that the bonds would be released for trading in a phased manner.

The tax-free, 15-year bonds carry an interest rate of 8.5 per cent, very attractive in today's low interest rate regime.

"It is unlikely we would see many power bonds traded. Earlier, the central public sector companies had to take the RBI's permission to trade even a single bond. So the permission to trade is a positive step. But the situation was different then as states were defaulting against payments. The power sector has since turned the corner. And at 8.5 per cent interest rate, the earnings on these bonds are high," said Mr Urmik Chhaya, Research Analyst at Anand Rathi Securities.

The RBI had agreed that the entire principal and 40 per cent of surcharge be converted to bonds on behalf of states, with a 5-year moratorium on trading.

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