RBI specifies bond valuation rule for state discoms

The Reserve Bank of India (RBI) on Thursday laid down guidelines for valuation of bonds issued by state power distribution companies (discoms). According to the guidelines, if the bonds are traded and quoted, it would be at their current market value. If not traded, these would be valued on a yield-to-maturity (YTM, the return to an investor if held till redemption) basis, plus a mark-up.

According to RBI, the relevant YTM would be the rate for central government securities of equivalent maturities, as put out by Fixed Income Money Market and Derivatives Association of India on the valuation day. The mark-up for illiquid bonds, if held by the discoms but guaranteed by the respective state governments would be 75 basis points (0.75 per cent). If not so guaranteed, the mark-up would be 100 bps. While during the period the bonds are held by the state government, the mark-up would be 50 bps.

The government had formulated and approved a scheme for financial restructuring of state-owned power discoms to enable their turnaround and ensure their long-term viability. The scheme envisaged the conversion into bonds of half the short-term liability dues (as on March 31, 2012) of the discoms to banks. These bonds would be issued by discoms and would be serviced by them for a specified initial period till taken over by the state governments in a phased manner. The bonds were to be duly backed by the guarantees of the respective state governments till the time their liabilities are taken over from the discoms.