Securitised Power Bonds To Hit Markets By July-End

The first tranche of securitised power sector bonds with a maturity of 3-4 years, mooted in the 1998-99 Union Budget in lieu of the dues to Coal India Ltd and National Thermal Power Corporation, is slated to hit the markets by July-end and will be budget-neutral to the government, finance ministry officials say.

It has been decided that the entire Rs 10,000 crore will be securitised in tranches. This is because most of the power companies are of the view that they would not require the funds immediately.

The government is also weighing the option of extending either statutory liquidity ratio or tax-free status to the bonds. Either status would imply a lower coupon rate and hence a lesser revenue outgo for the power companies.

The Reserve Bank of India, it is understood, is not in favour of extending this status. A final decision would be taken only by the first week of July, officials said.

"The bonds will be tradable. The RBI expects a good response since these are short-term bonds and they are tradable," a senior finance ministry official said.

The basic modalities of the bond was worked out during a meeting between the finance ministry, RBI and the power ministry. SBI-Capital Markets has been asked out to work out the final details of the bonds with RBI.

The budget had proposed that the Rs 10,000 crore owed by the state electricity boards (SEBs) to public sector outfits like Coal India and NTPC be securitised through the floatation of bonds. This would free the locked-up funds of these companies and permit them greater leverage.

Once these bonds are floated and subscribed to by the banks at a discount, the power companies will be given the funds. Thereafter, the redemption will be met from the Union budget.

The finance ministry is keen that the redemption should be budget neutral and not pose an additional burden on the fiscal deficit. Hence, it proposes to keep the bond values down to below the deductions that finance ministry effects from annual plan outlay to states in order to discharge outstanding debts of SEBs. This ceiling is currently pegged at 15 per cent of the annual plan outlay and works out to about Rs 1,500 crore.