The country?s fertiliser subsidy bill is likely to soar further and treble to Rs 1,19,772 crore this fiscal, from Rs 40,338 crore a year ago. The development has become a cause of concern for the fertiliser industry as it fears that the government may decide to issue bonds in the same proportion as last year?18% of the total subsidy.
The amount of bonds this fiscal may be to the tune of Rs 21,560 crore based on the subsidy estimates for the current fiscal. As against the latest subsidy figure, the budgetary provision towards the subsidy is to the tune of Rs 31,000.
?At the current rate of discount?15%?this is expected to have a negative impact of more than Rs 3,200 crore which is clearly unsustainable for the industry?? a senior official of Fertilisers Association of India (FAI) told FE. He said issue of any more bonds, in lieu of cash may force the companies to suspend production and imports, seriously affecting fertiliser availability.
According to industry sources, most of the 22 fertiliser companies have incurred losses on the bonds they received as they are trading at deep discounts. The 7.95% special bonds 2026 (second trance of special bonds), are currently quoted at a discount of 15%.
For last year?s subsidy, the Centre had issued bonds worth Rs 7,500 crore in two trances with a maturity period of 16 and 18 years with a coupon rate of 8.3 and 7.95% respectively. The country?s leading fertiliser majors, such as Iffco and National Fertilisers Ltd, have incurred losses on these bonds that were issued in December 2007 and February 2008.
Iffco, which had received Rs 1,676 crore bonds, is stated to have sold the first trance of bonds worth Rs 1,030 crore at a loss of 1.5%. NFL, which got bonds worth Rs 724 crore, sold the same in two trances of Rs 44 crore and Rs 120 crore at a discount of 1 and 5.9% respectively.
When contacted, the chairman and managing director of NFL, GS Mangat said, ?The reason for these bonds trading at deep discount are not far to seek. These are long term special securities. These are not approved securities for meeting Statutory Liquidity Ratio (SLR) by the banks and are classified under ?other approved securities?, hence banks and insurance companies are not obliged to purchase these bonds.
As such, these bonds have to compete with other AAA rated corporate bonds with much higher yields.?
He said the company has written to the department of fertilisers to compensate the losses of Rs 80 crore suffered due to sale of bonds at discounted rate.
