Market regulator Sebi has directed Gujarat government backed Sardar Sarovar Narmada Nigam Ltd (SSNNL) to justify the redemption price of bonds and inform all the bondholders individually about it before January 10. SSNNL attracted the Sebi ire after it proposed to prematurely redeem its 20 year deep discount bonds without taking the permission of bondholders or the Sebi.
The Nigam had issued 20 year deep discount bonds in 1993 at a price of Rs 3,600 which were to be redeemed in 2013 for Rs 1,11,000 with an interest component of about 17-18 per cent per year. While the bondholders had the option to redeem their bonds at 7th,11th and 15th year,the Nigam did not have the right to unilaterally call back the bonds.
However,with interest rates coming down sharply and the Nigam losing out by paying high interest rate,the Gujarat government passed a legislation last year which allowed the Nigam to prematurely redeem the bonds. Accordingly,the Nigam has 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.
In a notice issued on Friday,Sebi said the Nigam has not taken its consent for premature redemption nor that of the bondholders. 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, Sebi said in the notice to SSNNL managing director.
Sebi has told the Nigam to inform it as well as bondholders individually about the redemption and issue advertisements to the effect before January 8,2009.
The bonds worth Rs 240.98 crore at current value were the only outstanding ones left to be redeemed. When issued,these bonds were carrying an interest of 18 per cent,but since 2000, interest rates had begun falling and touched 6-9 per cent. As a result,the Gujarat government passed an act that enabled the company to redeem these bonds early before the interest rates dropped further. This led to the company issuing notices to its investors for redemption of bonds.