Proposed premature redemption of Narmada bond attracts SEBI scrutiny

The Securities and Exchange Board of India (SEBI) has asked the Sardar Sarovar Narmada Nigam Ltd (SSNNL) to justify the redemption price of its deep discount bonds and come up with details in this regard by January 7.

Written by Express News Service | Ahmedabad | Published:January 4, 2009 3:27 am

Justify price,inform investors individually,regulator tells Sardar Sarovar Nigam Ltd

The Securities and Exchange Board of India (SEBI) has asked the Sardar Sarovar Narmada Nigam Ltd (SSNNL) to justify the redemption price of its deep discount bonds and come up with details in this regard by January 7.

SEBI has also asked SSNNL to inform all bondholders individually and through wide publicity in newspapers regarding this. SSNNL had proposed to prematurely redeem its 20-year old deep discount bonds and this has attracted the attention of the market regulator,as it is deemed to be going against the interests of investors.

SEBI has now directed SSNNL to justify the redemption price of bonds before January 10.

Priced at Rs 3,600 each,SSNNL had issued these bonds in 1993 with a promise to pay Rs 1.11 lakh on maturity with an interest component of about 17 per cent a year.

While the bondholders had the option to redeem their bonds at the 7th,11th and 15th year,SSNNL did not have the right to unilaterally call back the bonds. But with interest rates coming down sharply and the SSNNL losing out by forking out high interest rate,the Government of Gujarat passed a legislation in 2008 allowing the premature redemption.

Accordingly,it sent notices to bondholders saying it would redeem all the outstanding bonds as of January 10,2009 at a redemption price of Rs 50,000.

Now,in a notice,SEBI has pointed out that SSNNL has not taken either its consent or those of the bondholders for the premature redemption.

The SEBI notice says: “The Nigam has not indicated the approach followed to arrive at the redemption price and the justification of the price in relation to prices at which investors have been transacting in the bonds in the secondary market.”

It has also asked SSNNL to inform the bondholders of the substance of the petitions moved in this regard and observations made by the Gujarat High Court.

When SSNNL had first proposed in 2004 to prematurely redeem the bonds,SEBI had said it had advised the Nigam to convene a meeting of the bondholders for their consent.

“It appears SSNNL did not do so and shelved the proposal,” the notice adds.

In 2008,the state Assembly passed a legislation — Sardar Sarovar Narmada Nigam Ltd (Conferment of Power to Redeem Bonds),2008 — which modified the prospectus with retrospective effect conferring call option on SSNNL. No consent from either SEBI or the bondholders was taken,though.

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