India issues more fert bonds for local producers

18 February 2008 17:17  [Source: ICIS news]

NEW DELHI (ICIS news)--India will issue long-term bonds amounting to Indian rupees (Rs) 36.1bn ($910m) to 23 fertiliser companies as compensation towards cash subsidy, the government announced on Monday.

Industry sources say the companies can sell these bonds to institutional buyers including provident funds and thus generate cash to sustain their operations.

The companies are, however, unhappy with the bonds as they have to sell them at 4-5% discount due to their limited market and very long tenure. A sale below the bonds' intrinsic value would strain the profitability of companies.

The bonds yield an interest rate of 7.95% a year and the government would redeem them to the bond holders at the time of maturity in 2026, an official release said.

It pointed out that this was the second and final installment of the maiden bonds for the current financial year ending 31 March 2008. In December, the Finance Ministry had issued the first installment of Rs38.9bn.

According to analysts, this cashless form of subsidy has been contrived by the government to control fiscal deficit and to reduce the mounting subsidy arrears as the bonds impact the fovernment’s budget only in the year of redemption.

In spite of bonds, New Delhi would not be able to full meet the total subsidy at Rs479.79bn inclusive of Rs80bn arrears for the previous years estimated by the Department of Fertilizers, industry sources said.

The subsidy is the difference between Government-controlled retail prices and the cost of fertiliser production by the domestic industry and the cost of imported fertilizers.

($1 = Rs39.66)

By: Naresh Minocha
+65 6780 4359

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