New Delhi: Fertilizer companies haven’t been able to redeem around 10% of the value of bonds worth Rs 27,000 crore that were allocated to them by the government in 2007-08 in lieu of subsidy reimbursements that were due to them, according to two officials with knowledge of the matter.
Till March 2011, the companies had sold bonds worth Rs 13,000 crore in the open market, but weren’t able to offload the rest due to a lack of market appetite.
The government typically issues bonds in lieu of payouts when it cannot make budgetary provisions for them. The government had issued these bonds at a coupon of 6.2-8%.
In March, the government agreed to buy back the remaining bonds worth Rs 14,000 crore in two tranches of Rs 7,000 crore each. While the buyback happened on two days—31 March and 26 July—officials say all the bonds could not be bought back, leaving a shortfall of about Rs 1,947 crore. Officials said there is no clarity yet on when these remaining bonds will be redeemed.
The government had agreed to compensate companies to the tune of half the losses they had suffered as part of the Rs 14,000 crore buyback was made at a discount. This payout, ranging from Rs 778.5 crore to Rs 890.9 crore, is stuck as the finance and fertilizer ministries haven’t been able to agree about the exact amount entailed.
Data reviewed by Mint shows that while the finance ministry puts the loss at Rs 1,557 crore, the fertilizer ministry estimates it at Rs 1,781.88 crore.
Two fertilizer ministry officials independently said the finance ministry wrote to the former in the first week of December on the issue. “The finance ministry now wants us to show how we arrived at the numbers,” one of the two officials said.
The second official said that once the two ministries sort out their differences, cabinet approval will be required before the final payout can happen. He said the entire process could take more than two months.
An executive of the Fertilizer Association of India, an industry lobby group, said that out of the bonds worth Rs 13,000 crore sold in the open market, the industry lost about Rs 500 crore as the debt was sold at a discount. This executive said companies have been raising money at 9-10% interest to meet working capital requirements.
Tarun Surana, an analyst with Mumbai-based Sunidhi Securities and Finance Ltd, said several companies had offloaded such bonds at discounts of 7-15%.
The two officials said the government had no obligation to reimburse industry for losses on the bonds.