After failing to reach a consensus with bankers on the pricing issues earlier this month, the Rajasthan state electricity board (SEB) has accepted the pricing module suggested by lenders. The bond issue is now likely to happen before the end of the month.
The issuance of bonds under the financial restructuring plan (FRP) for SEBs had hit a roadblock with banks as the state governments wanted the benchmark 10-year G-Sec yield as of July 1 to be used for pricing the SEB bonds.
Bankers rejected this and now the yields on G-Sec on the day of the issuance would be used to determine the coupon on the bonds. On July 1, the 10-year G-Sec yield was 7.48% and if this yield was taken as reference, the Rajasthan SEB bond would be priced at around 8.23%.
Since July 1, the benchmark 10-year government security (G-Sec) yield has risen by over 100 basis points and is now trading close to 8.7%. This would mean an immediate over 100 basis point jump in the coupon rate on these bonds, which SEBs were reluctant to offer.
The issuance date for the bonds of all SEBs that opted for the FRP was slated to be July 1. However, so far only Tamil Nadu SEB has R6,144 crore worth of bonds on June 18, when the yields on G-sec were around 7.27%.
The SEBs? bonds, issued under FRP, carry a state government guarantee and are to be priced at 75 basis points over the prevailing yield of the 10-year benchmark G-Sec.
Rajasthan SEB is the most debt laden among all states in the country and the banks have approved to restructure about R38,000 crore of short term liabilities of the state.
Out of the total FRP of R1.9 lakh crore, banks have agreed to restructure short-term liabilities (STLs) worth R1 lakh crore of four state electricity boards (SEBs) ? Rajasthan, Tamil Nadu, Uttar Pradesh and Haryana. These states along with Punjab and Madhya Pradesh account for 70% of the total package. Punjab, which has STLs of R12,000 crore, and Madhya Pradesh, which has STLs of R1,100 crore, have not agreed to join the restructuring programme, according to sources.
Under the FRP that was drawn up last year for ailing SEBs, banks will reschedule the repayment of 50% of the short-term loans by giving a moratorium of three years while for the balance 50% of the exposure, the SEBs will issue bonds guaranteed by the respective state government.
