Banks pick up 75% of UDAY bonds

Instruments issued by eight states that have accumulated liability of Rs 2,05,010 cr as on September 30, 2015

Of the Rs 1.11 lakh crore of bonds issued by the states and their power distribution utilities as part of debt restructuring, close to 75 per cent has been picked by banks, followed by the Life Insurance Corporation of India (LIC) and the Employees Provident Fund Organisation (EPFO). Private sector entities like mutual funds and banks have picked up eight per cent of the bonds amounting to Rs 9,030 crore.

The Union government expects a large chunk, amounting to around Rs 3 lakh crore liability accumulated by state power distribution utilities, to be issued as bonds during the current financial year.

The bonds were picked up at interest rates ranging 8.58-8.21 per cent, varying according to states, till March 31, 2016. “Interest rates have started to come down in line with the G-Sec rate. They will further come down,” said a power ministry official who did not want to be named.

The interest rates on earlier debt were above 10 per cent. He said the participation of private sector showed its confidence in the issuance. Bonds have been issued by eight states that have accumulated liabilities of Rs 2,05,010 crore as on September 30, 2015.

The official said after the issue of bonds in the current financial year, Rs 1 lakh crore of liabilities would remain for states which are part of the Ujjwal Discom Assurance Yojana (UDAY); but these were held by better-placed states such as Gujarat and Madhya Pradesh.

Among the banks that subscribed to the bonds issued under UDAY were Central Bank of India, which took the largest chunk of Rs 9,190-crore worth of bonds — of which almost 70 per cent was from Rajasthan — at an interest rate of 8.39 per cent. This was because the bank had the highest exposure to discom lending, said the official.

Punjab National Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank, Reliance Mutual Fund and Birla Sun Life Mutual Fund were among others who picked up the bonds. EPFO was the largest subscriber to bonds from Jharkhand and LIC was to Bihar.

States signing up for the UDAY scheme are required take more than 75 per cent of discom debt as on September 30, 2015, over two years — 50 per cent in FY16 and 25 per cent in FY17. These states then issue bonds in the market to capitalise on it.

The balance 25 per cent of debt remaining with the utilities was issued separately by discoms with a sovereign guarantee. Among the eight states, Jharkhand was the only one to take over the liabilities, amounting to Rs 583 crore, on its Budget. Rajasthan, which has the highest discom debt, issued bonds totalling Rs 37,349 crore. Its distribution companies issued bonds worth another Rs 11,524 crore. Uttar Pradesh issued bonds in three tranches totalling Rs 24,332 crore .

LIC, ICICI Securities, ICICI Prudential, Axis Bank and Kotak Mahindra Bank subscribed to the Rs 2,140 crore of bonds issued by the J&K state government.

Until now, 18 states and one Union territory have agreed to join UDAY in-principle. Of these, 10 have already signed memoranda of understanding. States like Uttarakhand and Gujarat have agreed to join UDAY but do not need to issue bonds.