Sebi questions SSNL action

The Securities and Exchange Board of India (Sebi) has directed Sardar Sarovar Narmada Nigam to disclose the method for arriving at the redemption price to the holders of its deep discount bonds. The company had decided to redeem the bonds prematurely.

In 2008, the state government came up with a legislation making redemption mandatory for all bonds by January 2009, at a deemed face value of Rs 50,000 per bond. The Sardar Sarovar Narmada Nigam (conferment of power to redeem bonds) Act, 2008, modified the prospectus “with retrospective effect conferring the call option on the company”, according to a Sebi communication.

Sardar Sarovar Nigam had issued these bonds in a prospectus dated September 29, 1993, without any mention of a call option. The bonds were issued at a discounted price of Rs 3,600 at an interest of 17 per cent payable in slots of 7, 11, 15 and 20 years. Thus, a bondholder could expect Rs 1,11,000 per bond after 20 years (in January 2014).

While the change in legislation is “not obligatory”, Sardar Sarovar has decided to redeem the bonds before maturity without the consent of the bondholders. Indian Oil Corporation (IOC), Steel Authority of India (SAIL) are some of the bondholders who subscribed to the bonds at issue price or purchased them the secondary market at a price based on the earlier prospectus. The regulator received complaints from several investors and investor associations against the proposed premature redemption of the bonds on January 10.

Sebi has also directed the company to inform both the bondholders and the regulator the method for arriving at the redemption price and “the justification of the said price in relation to prices at which investors have been transacting in the said bonds in the secondary market”.

In 2004, Sardar Sarovar had similarly proposed to prematurely redeem the bonds. However, the regulator had asked the company to convene a meeting of all the bondholders to obtain their consent. But Sardar Sarovar shelved the proposal at that time.

The Sebi communication also mentions that some investors have approached the Gujarat and Bombay high courts in the matter. The Gujarat High Court did not grant a stay but stated that “if the Act is struck down, then investors would get their monies in 2014, as originally promised.”

Sebi has also asked the company to inform all bondholders individually about the substance of the petitions and observations of the Gujarat High Court.

Two petitions have been filed in the Gujarat High Court by Hindustan Steel and Winmedicare Limited’s employees’ provident trust challenging the “compulsory premature redemption” of the bonds. The total number of petitions challenging the company’s decision has gone up to eight.

All the petitions in this regard have been clubbed together and a division bench of justices D A Mehta and Abhilasha Kumari is hearing them. Indian Oil Corporation (IOC), Maharashtra-based Janta Kalyan Sahakari Bank, Shailesh Oza of Surendranagar, SAIL and ITDC employee provident fund have filed petitions in the high court.