Masala Bond scam: A game of interest rates?

Thiruvananthapuram: The communist government is hailing the Masala Bonds as the solution to all the financial woes that the State is presently facing. According to the proponents of the bond, the State will be flush with funds that can be used to finance developmental projects.

According to reports, a Canadian company, CDPQ, has come forward to buy the Masala Bonds worth Rs. 2150 crores.

However, when we look at the interest rate of the Masala Bonds, issued by Kerala Infrastructure Investment Fund Board (KIIFB), we are forced to think if the State has truly gained by the deal.

According to the information provided by KIIFB in its website, the interest rate of the Masala Bonds is pegged at 9.732% and the tenor is for 5 years. Concerns are raised at the high level of interest rate that we must pay to the Canada based company CDPQ, which has agreed to buy the bonds, according to reports.

However, a quick look at the interest rates of Masala Bonds issued by other Indian government entities and private sector companies like HDFC, we realize that KIIFB has struck a bad deal for the State.

HDFC issued its first ever Masala Bonds at London Stock Exchange (LSE) on 21 July, 2016 with a coupon rate of 7.875% to raise an amount of Rs. 3000 crore. The company returned again in September and raised Rs. 1500 crore on a coupon rate of 7%.

On 30 March, 2017 HDFC again raised Rs. 3300 crore and the coupon rate was just 6.875%.

On 11 May, 2017, the National Highway Authority of India (NHAI) had raised Rs. 3000 crore for an interest rate of 7.5%. Another Central Government entity, National Thermal Power Corporation (NTPC), raised Rs. 2000 crore for 7.375%.

Dewan Housing Finance Corporate (DHFL) issued a 5 year Masala Bond for 8.5% on 19 April, 2018.

All the above examples show that these entities have issued Masala Bonds with an interest rate below that of KIIFB-issued Masala Bonds.

So why is the Kerala government entity KIIFB raising Rs. 2150 crore for an astounding 9.732% interest rate?

This raises serious questions about the Kerala government entity KIIFB’s deal with the Canadian company CDPQ. It seems that the government is favouring CDPQ by agreeing to pay higher interest rate.

This is where opposition and the media in the State is suspecting corruption. The government seems to have agreed deliberately to an adverse deal that will lead to a loss to the exchequer.


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