The Economic Times, December 10, 2010
NEW DELHI: The country's cash-strapped fertiliser makers are blaming the ministry of chemicals and fertilisers for the delay in compensating them for the losses they suffered on selling government bonds.
The long-tenure bonds were issued to public sector fertiliser companies in lieu of the cash subsidy they receive from the government for selling their produce below cost.
People close to the matter said the finance ministry is ready to repay the fertiliser firms but it can't do so until it receives a proposal from the ministry concerned. "We can only act if we receive a proposal," a finance ministry official told ET.
The delay is adding to the grief of fertiliser makers as they have to sign contracts for the kharif season by the end of January or early February. "Normally , it is the administrative ministry that should aggressively push for the resolution of this problem," said an industry representative. "But in this case, it is the finance ministry that is taking the initiative." The government had issued Rs 27,500-crore worth of bonds to fertiliser companies in lieu of subsidies for 2007-08 and 2008-09.
Some of these companies had sold Rs 13,611 crore worth of these bonds at a discount after they failed to find ready takers for them. This led to a loss for these firms, which was pegged at Rs 543.3 crore at the end of March 2009. They are ready to sell the remaining bonds at a loss of about Rs 1,400 crore if there is a commitment from the government that the losses will be made good. The finance ministry had in October agreed to compensate the fertiliser firms but the department of fertilisers has not yet moved a detailed note on the issue. "There is simply no market whatsoever for these 20-year bonds," said a Fertiliser Association of India official. "Should we manage to sell them, the industry will end up suffering a big loss against a backdrop of higher interest rate and a consequent drop in the value of the bonds."
The market is currently valuing these special securities at a discount of over 10% of their face value. This means that a bond holder will receive only Rs 90 for a bond worth Rs 100. The discount is highest in the bonds issued in the last two tranches because the coupon on them was 6% against the current benchmark rate of over 8%. Bond prices and interest rates move in opposite directions.
The lack of urgency is despite estimates that the annual fertiliser consumption will shoot up 20% under the new nutrient-based subsidy scheme, which means resolution of liquidity problems of fertiliser companies is critical. The worries of fertiliser companies over unpaid dues by the government do not end with the bonds.
The long-tenure bonds were issued to public sector fertiliser companies in lieu of the cash subsidy they receive from the government for selling their produce below cost.
People close to the matter said the finance ministry is ready to repay the fertiliser firms but it can't do so until it receives a proposal from the ministry concerned. "We can only act if we receive a proposal," a finance ministry official told ET.
The delay is adding to the grief of fertiliser makers as they have to sign contracts for the kharif season by the end of January or early February. "Normally , it is the administrative ministry that should aggressively push for the resolution of this problem," said an industry representative. "But in this case, it is the finance ministry that is taking the initiative." The government had issued Rs 27,500-crore worth of bonds to fertiliser companies in lieu of subsidies for 2007-08 and 2008-09.
Some of these companies had sold Rs 13,611 crore worth of these bonds at a discount after they failed to find ready takers for them. This led to a loss for these firms, which was pegged at Rs 543.3 crore at the end of March 2009. They are ready to sell the remaining bonds at a loss of about Rs 1,400 crore if there is a commitment from the government that the losses will be made good. The finance ministry had in October agreed to compensate the fertiliser firms but the department of fertilisers has not yet moved a detailed note on the issue. "There is simply no market whatsoever for these 20-year bonds," said a Fertiliser Association of India official. "Should we manage to sell them, the industry will end up suffering a big loss against a backdrop of higher interest rate and a consequent drop in the value of the bonds."
The market is currently valuing these special securities at a discount of over 10% of their face value. This means that a bond holder will receive only Rs 90 for a bond worth Rs 100. The discount is highest in the bonds issued in the last two tranches because the coupon on them was 6% against the current benchmark rate of over 8%. Bond prices and interest rates move in opposite directions.
The lack of urgency is despite estimates that the annual fertiliser consumption will shoot up 20% under the new nutrient-based subsidy scheme, which means resolution of liquidity problems of fertiliser companies is critical. The worries of fertiliser companies over unpaid dues by the government do not end with the bonds.
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