Government finalises norms for distribution companies’ debt recast

April 5, 2013

The Centre said that the bonds to be issued by states, backed by it under the debt recast plan for power distribution utilities, will attract about 0.5 per cent premium over the issue price yet to be determined.

The government has also extended the deadline to July 31 for states to participate in the Power Ministry’s ambitious debt recast plan.

The accumulated losses of the state power distribution companies are estimated to be about Rs. 190,000 crore as on 31st March, 2011.

Power Secretary P Uma Shankar said the Power Ministry, in consultation with other ministries, has finalised the guidelines for calculating the rate of interest on bonds to be issued by states and they will be guaranteed by the Centre.

According to the new guidelines or transitional finance mechanism, the government will provide five-year security and state development loan backed by it.

There would be a premium to the tune of 45 basis points on the bonds – 25 basis points compensation for non-SLR and another 20 basis points incremental return.

Statutory Liquidity Ratio or SLR refers to the amount that all banks require to maintain in cash, Gold or approved securities. SLR bond is a government issued bond, investment in which is treated as liquid under the SLR requirement.

Mr Shankar said Jharkhand, Bihar and Kerala have shown interest in joining the FRP scheme. Uttar Pradesh, Tamil Nadu, Andhra Pradesh, Rajasthan and Haryana are the five states that have come forward so far to avail of the scheme.

Under the scheme, approved by the Cabinet Committee on Economic Affairs in September, 50 percent of the short-term outstanding liabilities would be taken over by state governments. The remaining 50 per cent loans would be restructured by providing moratorium on principal and best possible terms for repayments.

As part of mandatory condition, 50 per cent of the outstanding liabilities up to March 31, 2012 is to be taken over by the state governments. This will be first converted into bonds to be issued by distribution companies to participating lenders, duly backed by the state government’s guarantee.

The support under the scheme will be available for all participating state-owned distribution companies on fulfilling short-term mandatory conditions.

The takeover of liability by state governments from distribution companies in the next two-five years will be in the form of special securities. Till then, the repayment will be done by state governments.