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‘Discom bonds under FRP not eligible for SLR status’

RBI says bonds to be valued as per govt rules

Written by Fe Bureau | Mumbai | June 28, 2013 2:42:29 am

The Reserve Bank of India on Thursday reiterated that the bonds issued by discoms as part of the financial restructuring plan (FRP) will not be eligible for statutory liquidity ratio (SLR) status and will be valued according to terms laid out by the government last year.

Last year,the Centre had dropped the proposal to give SLR-status to the bonds issued to banks under the FRP restructuring scheme for state electricity boards (SEBs).

Tamil Nadu,earlier this month,became the first state to issue bonds worth R6,144 crore under the FRP scheme that was approved by banks in March. The Tamil Nadu discom is eligible to restructure about R24,000 crore in short term liabilities,according to FRP.

While RBI directed states to consider their guarantee limits before giving guarantees to banks,lenders said they will not agree to restructuring any discom which is not fully guaranteed by the state.

“We have not come across a situation where the states did not give full guarantees. Banks will not restructure any discom without full guarantee from the state,” a banker from a large public sector bank said.

RBI guidelines on the valuation of SEB bond issuances said if bonds are traded they will be valued at market price,and if the bonds are held till maturity,yield-to-maturity rates will be applicable on the bonds. The yield-to-maturity rates will have a premium of 75-100 basis points above the benchmark government securities.

RBI said the bonds will carry a premium of 75 bps over benchmark G-sec for those notes guaranteed by the state,while those not guaranteed by the state will carry a premium of 100 bps over comparable G-sec.

So far,Uttar Pradesh,Rajasthan,Haryana and Tamil Nadu have got their FRPs approved by the banks and are on their way to issuing bonds. Banks have agreed to restructure a total of about R1 lakh crore for the four states. The government has approved a restructuring package of R1.9 lakh crore,last year,to cover all the short term liabilities of state discoms.

Around 70% of total losses of discoms are estimated to be contributed by SEBs of six states — Rajasthan,Tamil Nadu,Uttar Pradesh,Haryana,Punjab and Madhya Pradesh. According to bankers Madhya Pradesh and Punjab have declined to join the scheme.

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