The Punjab State Industrial Development Corporation (PSIDC), a state-owned enterprise and a cash-strapped NBFC, is in the eye of storm for a default over the redemption of bonds. It has defaulted on a payment of Rs 380 crore towards principal and interest on the bonds it had floated.
The retail investors who had invested their life-time savings in a less risky investment instruments, as it was backed by the Punjab Government, can be seen making queries at the head office of PSIDC Chandigarh to redeem their bonds. Over 900 investors (institutional and corporate) parked their money in these during the series of bonds issued by the corporation. The most recent bond overdue occurred on January 26. Institutional investors and corporate players hold the larger stake, while share of retail investors is minscule.
Sources revealed that this is not for the first time PSIDC has defaulted the maturity of bonds. It has been occurring since 2012 due to anomalies in the recovery mechanism of the enterprise from its equity holders and loanees. Even the interest payments on bonds have been irregular since the last three years due to financial mismanagement at the company. The Reserve Bank of India sent a notice to PSIDC last year asking why its registration as an NBFC should not be cancelled. It defaulted on the payment of Rs 270 crore against bonds it had floated earlier.
A senior official in PSIDC informed Business Standard that the corporation has a cumulative liability of about Rs 400 crore and this includes principal and interest. The state-owned corporation has also paid a penalty of financial guarantor amounting to Rs 100 crore to the banks for the projects that failed to kick-off. The corporation had floated 15 bond issues between 2001 and 2013, and raised Rs 610.92 crore as unsecured loans.
He added that PSIDC can recover up to Rs 20,000 crore on the default payments if the terms and conditions of repayments are strictly adhered to. According to sources, prominent industrialists and politicians of Punjab owe crores of debt to the enterprise. The political patronage extended to the borrowers by different political parties in the last twenty years has put PSIDC in shambles.
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“We have announced in December 2015 that equity holders can repay their outstanding at the rate of 10% (simple interest) for any duration under the OTS (One Time Settlement Scheme). The assets of recalcitrant borrowers can be attached as a last resort”, told S R Ladhar the Managing Director PSIDC. A priority list has also been prepared by the PSIDC to redeem the bonds and the small investors are on the top of priority, he added.
The officials may leave no stone unturned to appease the small investors, but PSIDC is in a financial jeopardy. There has been a tepid response to the OTS scheme offered by it, sources say. The applications for Rs 44 crore of repayments have been received and repayment would be staggered over two years.
PSIDC was evolved during post-militancy in Punjab to revive the medium and large scale industry in the state. It kicked off well and issued bonds worth Rs 50 crore in 1998 for the first time.
Over the years, due to non-payment of outstanding liabilities, the portfolio of PSIDC started shrinking. Sources in the PSIDC confirmed that in the past many years, no request for financial assistance has been received for setting up any new industry.
The trained staff with niche skills left the corporation for greener pastures as the productivity of the workers plunged due to stagnation in industry in Punjab.
The sources also revealed that the incumbent Akali-BJP alliance is more inclined towards in rural vote bank so the proposals for the streamlining the growth of industry have not been mulled seriously by the policymakers.