Govt may soon buy back remaining fertiliser bonds

The government may soon buy back the last of the fertiliser bonds worth Rs 1,947.37 crore held by fertiliser companies at a discount and compensate them for 50% of their losses.

Unable to accommodate a higher fertiliser subsidy in the Union Budget, the government had resorted to issuance of bonds worth Rs 27,500 crore to domestic fertiliser companies toward payment of its subsidy bill for 2007-08 and 2008-09.

Out of this, the Centre has already re-purchased bonds worth Rs 25,552 crore in two tranches from the fertiliser companies to provide them with liquidity.

"Some of the companies could not submit the application with the RBI to sell their bonds worth Rs 1,947.37 crore when the second tranche of buy-back took place in July. So, we decided to redeem the remaining bonds," a senior Fertiliser Ministry official told PTI.

The proposal could not be discussed at a meeting of the Committee of Secretaries (CoS) on October 5. It will be taken up in the next meeting, the official said.

The CoS will also discuss the ministry's proposal to consider reimbursing Rs 890.94 crore, which is 50% of the total loss (Rs 1,781.88 crore) incurred by fertiliser companies on account of the buy-back of bonds by the Reserve Bank.

The buy-back of bonds will improve the working capital of the fertiliser companies, who are dependent on imports for their requirement of inputs and raw materials such as naphtha, rock phosphate and phosphoric acid amid spiralling prices in the global market.

The fertiliser companies, who are facing a financial crunch, are not able take loans from banks using these bonds as collateral, as they do not have statutory liquidity ratio (SLR) status.

The fund shortage has made it impossible for the fertiliser-makers to hold on to these bonds for their full term of 18 years and they have no other option but to dispose of them at lower prices in the open market to raise cash.

The Fertiliser Ministry has a total subsidy budget of Rs 53,589.87 crore for the year 2011-12 fiscal, but the projected outgo is Rs 76,605.30 crore.