Thiruvananthapuram: Since the news came out that a Canadian company, CDPQ, has agreed to buy Rs. 2150 crore worth of Masala Bonds issued by the Kerala Infrastructure Investment Fund Board (KIIFB), the opposition, media, and experts are suspecting foul play in the multi billion rupee deal.
Details into the deal can be best described as opaque and sometimes fussy. One serious allegation that the opposition leveled against the ruling party is that CDPQ has investments in the infamous SNC Lavalin company, which is black listed in the state for corruption charges involving Chief Minister Pinarayi Vijayan.
Another point of contention is the interest rate of the Masala Bonds issued by KIIFB, which is 9.732%. Many suspect foul play by the government in pegging the interest rate at this amount. They are wondering if the Kerala government is trying to favour the Canadian company by paying the high amount of interest rate.
Of course, the government has given its explanation to both arguments. They say that CDPQ is a pension company which has investments in many commercial entities which might have included the dubious SNC Lavalin.
Coming to the interest rate, the Chief Executive Officer of KIIFB, K. M. Abraham, said that the rating of KIIFB was only ‘BB’ and thus only higher interest rates could suffice to attract investors.
Rating is done to give potential investors awareness about the risk involved in investing in financial products, companies or in countries. If a company is given high rating, then it means that the company is performing well and the risk in investing in it is low. Vice versa, if the company is doing bad ratings will be lowered indicating that an investment in that company is highly risky and the investor could face financial loss.
There are rating agencies who conduct in-depth analysis of companies, financial products, and countries to provide the rating according to its financial stability and risk.
Coming back to the Masala Bonds issued by KIIFB, the rating agencies that gave the BB rating were Standard & Poor (S&P) and Fitch. Both these rating agencies are internationally well known financial institutions.
However, analysts wonder why a low rating was given to a state owned enterprise by the rating agencies. For example the Indian company HDFC was given a rating of Baa2 by Moody’s, another rating agency, in 2018, for raising investments worth Rs. 2,300 crores through Masala Bonds. This rating is higher than S&P’s BB rating that KIIFB received.
It comes as a surprise that a government backed enterprise KIIFB got a lower rating than an Indian private bank, HDFC. Is there any controversy in the ratings given by S&P?
Although, the rating agencies like S&P, Fitch, and Moody’s are internationally renowned, they are not far from controversy. During the subprime mortgage crisis, which led to the recession in 2008, these rating agencies were criticized for misleading the investors by giving high ratings to financial instruments that were highly risky.
The Kerala government’s reluctance to disclose the details of the deal between CDPQ and KIIFB and the government’s silence to opposition questions makes the whole deal look fishy and suspicious.