Dam opens but closure eludes bondholders

While dedicating the Sardar Sarovar project to the nation, the prime minister recalled various obstacles that came in its way and how several people conspired against it. But, he omitted mentioning the plight of a group of people who not only supported the project but offered their hard-earned money to be invested in the project. What did they get in return? 

A broken promise, an unconstitutional law, and lost decades in courts.

Over two decades after they invested in deep discount bonds (DDBs) of Sardar Sarovar Narmada Nigam Ltd (SSNNL), some steadfast bondholders are still waiting for justice at the Supreme Court. Unable to bear the cost of conducting a case in the Supreme Court, which could run into a few lakhs per hearing, many have given up.

An investor told Street Food that only endowment and provident funds of some PSUs and some cooperative banks have been able to keep the case alive. SSNNL, fully owned by the Gujarat government, had issued more than 700,000 DDBs in 1994. The bonds, which were to mature in 2014, would have resulted in a payout of more than Rs 7,000 crore at the face value of Rs 1,11,000 apiece.

According to the Prospectus, the bondholder had the option of redeeming the bonds, which were initially offered at Rs 3,600 apiece, at the end of the seventh, 11th, and 15th year, commencing from 1993, at Rs 12,500, Rs 25,000, and Rs 50,000, respectively.

On March 29, 2008, the state of Gujarat promulgated a controversial law by which the company got the powers to redeem the bonds without consent from bondholders.

On November 3, 2008, when the SSNNL board cleared the premature redemption, a little more than 669,000 bonds were outstanding. Of these, 129,841 investors in Gujarat were holding 170,462 DDBs, while 279,335 investors outside Gujarat had 498,909 DDBs.

While the Gujarat government claimed the law was in the public interest, it was challenged in several courts of the country. In 2013, the Supreme Court directed the investors to the Gujarat High Court for the matter to be heard expeditiously.

In 2016, the Gujarat High Court struck down the Sardar Sarovar Narmada Nigam Ltd (Conferment of Power to Redeem Bonds) Act, 2008, whose constitutional validity was questioned by bondholders. But, the court put riders on consequent relief for them. Bondholders felt that those riders, which required them to file individual civil suits, meant that the cases would drag on for another decade. In any case, the Supreme Court has stayed the Gujarat High Court order on an appeal by SSNNL.

In its latest annual report, SSNNL has said it has redeemed about 612,114 bonds worth Rs 3,060 crore. This includes a redemption of Rs 44 crore in FY16. It still has about 57,266 bonds outstanding with dues of Rs 286.33 crore, including interest. While till the previous year this sum was shown under the head “secured long-term debt”, in the FY16 balance sheet, the dues were shown under the head “Investor protection fund.”

A note to the accounts said the dues had been secured by mortgage of land and properties in Baroda, Bharuch and Ahmadabad districts. 
 

The issue of bondholders betrayed by a government entity is a huge blot not only on Sardar Sarovar, but on Indian investment history itself. This blot can’t be wiped off by all the waters flowing down the sluices of the dam, unless the prime minister undoes the damage.