Fresh from its successful masala bond issue, Kerala Infrastructure Investment Fund Board (KIIFB) has said that it was regrettable to portray the history-making issuance in adverse light.

The reference is to the controversy surrounding investments in the bond by CDPQ, which has also invested in SNC-Lavalin, whose previous involvement in India is a subject matter of litigation.

The Canadian SNC-Lavalin has been in the news in Kerala from 1997 after its alleged involvement in a corruption case in which Chief Minister Pinarayi Vijayan, then Electricity Minister, has been named.

The case concerns the loss of ₹86.25 crore in the Kerala State Electricity Board’s (KSEB) contract for renovation and modernisation of the Pallivasal, Sengulam and Panniar hydroelectric projects.

Spectrum of investors

KM Abraham, Chief Executive Officer (CEO), KIIFB, the masala bond transaction saw strong participation from a wide spectrum of investors which included asset managers, insurance companies, pension funds, banks as well as private wealth managers.

CDPQ is a government body in Canada created in 1965 under an act of the National Assembly of Quebec. It is a public sector body whose entire beneficial interest is held by the Government of Canada.

CDPQ is an institutional investor which manages pension funds and insurance programmes, and has its headquarters in Quebec, Canada. It is the country's second largest pension fund.

It has has investments in 75 countries, totalling $220 billion. CDPQ has offices in eight countries including India at New Delhi and makes investments under Foreign Portfolio Investor or Foreign Direct Investment regulations. It has also purchased $130 million worth of securities issued by the Centre. CDPQ and the National Infrastructure Investment Fund Board are in talks to partner in various infrastructure projects in India.

Also read:KIIFB's masala bond issue sparks interest among other states

'Illogical argument'

From the Annual Report of SNC-Lavalin available in its website, it is seen CDPQ has business transactions with SNC-Lavalin. There are other Pension funds of Canada which have investments in SNC-Lavalin.

But SNC-Lavalin or none of the other institutions in which CDPQ has invested can have any ownership in

CDPQ as it is a Government body of Canada.

Hence it would be illogical to connect any of the many investments of CDPQ as part of its total portfolio of $220 billion, whether SNC-Lavalin or any other body, to the masala bond deal of KIIFB.

With regard to charge that the rate of interest at which KIIFB has borrowed funds is excessive, Abraham said the KIIFB masala bond has been issued at 9.723 per cent.

KIIFB is the only State Level institution that has borrowed from the masala bond Market with the approval of the Reserve Bank of India.

So far only institutions with AAA rating have entered the masala bond Market. This is the first time that an

entity like KIIFB with a rating of BB has attempted a bond of this nature.

KIIFB has been able to obtain the best possible rate in the masala market when viewed against rates

obtained by other institutions with a much superior AAA rating.

'Best possible rate'

Bond issuances in the domestic market for a tenor over one year was analysed in depth. Rates obtained by bond issuers rated similar to KIIFB in the domestic market for the last one year are significantly higher.

The lowest rate at which an A+ rated entity has been able to raise fund in domestic market has been at 9.87 per cent and that too for a three-year bond with an issue size of just Rs 37.5 crore.

A Government entity like the Andhra Pradesh Capital Region Development Authority, a government body like KIIFB, has raised funds in the domestic market at 10.32 per cent (payable quarterly).

Rates at which other institutions banks like Central Bank of India (10.8 per cent), Indian Overseas Bank (11.7 per cent) and South Indian bank (11.75 per cent) have raised funds during the period are much higher.

It can therefore be seen that the rates at which KIIFB has raised funds are much lower than what any institution like KIIFB has raised in the domestic market over the last one year.

It is hoped that such avoidable controversies without any reasonable basis do not affect the investment potential of Kerala in the future and deter international investors to come to Kerala.

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