Kerala Assembly witnesses intense 'masala' moments

Thomas Isaac
Finance Minister T M Thomas Isaac, who was under severe attack by the opposition for the manner in which the bond was issued, gave a point by point rebuttal of most of the charges.
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Thiruvananthapuram: The Assembly on Tuesday was spiced up by a debate on masala bonds, a debt instrument employed by the Kerala Infrastructure Investment Fund Board (KIIFB) to mop up Rs 2,150 crore from the London Stock Exchange. Finance Minister T M Thomas Isaac, who was under severe attack by the opposition for the manner in which the bond was issued, gave a point by point rebuttal of most of the charges.

Some questions, however, remained unanswered. Like for instance, the Canadian company's share of the total masala bonds purchased or the absence of three- or five-year moratorium on repayment he had assumed when he began the KIIFB experiment; repayment for masala bonds begin right from the word go. Nonetheless, Isaac said he was willilng to share details of the masala bond issue with any MLA who was curious.

The opposition trained their guns on principally two aspects of the bond issue. One, special favour to a Canadian firm called CDPQ, which the opposition said had crucial stakes in the hugely controversial SNC-Lavalin company. (Chief minister Pinarayi Vijayan is still fighting a case in which he has been accused of corruption in a deal he had struck with Lavalin for the renovation of Pallivasal, Sengulam and Panniyar hydel projects in 1995 when he was power minister.) Two, the coupon rate of 9.72 per cent, which the opposition called “exorbitant”.

The opposition had also made fun of Isaac saying he had embraced neo-liberal economic policies after stigmatising them most of his life. Isaac said the resort to instruments like masala bonds were not neo-liberal but “Keynesian”, in other words and attempt to find more money to stimulate the economy.

The masala bond issue was brought in as an adjournment motion and the finance minister, contrary to practice and seriously confounding the opposition benches, agreed to a comperhensive discussion on the issue. Usually adjournment motions are rejected by the Speaker after members are allowed to make brief presentations. It was Congress MLA K S Sabarinathan who introduced the motion.

Cut-throat interest

Sabarinathan: The coupon rate of 9.72 per cent is unbelievably high. There were nearly 50 masala bond issues in the last two years and it was the KIIFB coupon rate that is the highest. It is at least two per cent higher than the rate at which many public sector companies like National Highway Authority of India and NTPC had issued masala bonds recently. No investor will be willing to purchase bonds at this rate.(Opposition leader Ramesh Chennithala, while his turn to speak came, also alleged that Isaac had lied that the interest rate was low.)

Isaac: I had never claimed that the interest rate was low. If we wanted the money now, this was the best available rate. We had attempted to mobilise the money from the domestic market but when we found that the interest rate was 10.2 per cent we desisted from going ahead with the issue. We tried again later. Then it was 10.25 per cent. It was only then did we go for the masala bond issue. Moreover, top SEBI and RBI officials we had consulted said that the rate was fair.

If the issues of other PSUs like NHAI and NTPC had lesser coupon rate of around 7.8 it was because they were rated higher. The KIIFB bonds are rated at least two or three notches below them.

Further, 9.72 per cent is not the rate for all the loans that KIIFB will source. For instance, the KSFE's float money (the money that remains with the KIIFB after Pravasi Chitty subscribers withdraw their bids is the float money) will be made use of at only 3.5 percent. The term loans from banks will be available for 8.5 percent.

Whatever the interest, half of the yearly motor vehicles tax and the petrol cess, both of which have been diverted to the KIIFB, will be enough to repay by 2030 the interest and principal of Rs 50,000 crore that the KIIFB would borrow and invest in five years. I have made this calculation keeping 9 per cent as the average interest rate.

Private deal in Canada

Chennithala: The KIIFB did a secret private placement in Canada, specifically for CDPQ. This suggests that the government was eager to see the company with links to SNC-Lavalin profit from a state deal. CDPQ and Lavalin officials had come to the state in Febraury this year to hold negotiations with the LDF government.

Isaac: This was not a secret private placement. We have to make offer circulars for each country on the basis of their rules. Further, the bid was open only to institutional investors, not retail investors. We had no idea about Canada's interest until they came to us. This was why we had to introduce an addendum to incorporate institutional investors in Canada.

It is not just enough to list our bond in the London Stock Exchange. The KIIFB will have to convince investors of its credibility. That is why we had conducted road shows in various European countries. We will also have to meet their people and explain our strengths. In some case, they meet us.

Mystery of Kannur park

Sabarinathan: There seems to be a mystery in the projects listed by the KIIFB in its offer circulars. The offer circular put out in December, 2018, lists hill highway, K-FON, coastal highway, Transgrid, upgradation of hospitals and schools and city and town development as the major projects.

The offer circular put out later, on March 29, 2019, looks similar except for a strange and shocking new addition. It includes a new project called Kannur Industrial Park with a whopping project cost of Rs 12,240 crore. From where has this project emerged? Not a single MLA from Kannur, or for that matter even a minister, has any idea about the project. I suspect a link between CDPQ and the proposed park in Kannur.

Isaac: If the park was not in the first offer it was only because KIIFB had not granted sanction for the project then. Later it was given the nod and so found a place in the second offer circular. What's more, government order to this effect has also been issued. (The minister tabled the government order in the Assembly.)

SNC-Lavalin connection

Sabarinathan: The CDPQ has strong links with SNC-Lavalin. It holds 20 per cent shares in SNC-Lavalin. When Canadian prime minister Justin Trudeau's office came under a cloud for allegedly protecting SNC-Lavalin in a criminal investigation recently, it was CDPQ that came to the aid of Lavalin.

Isaac: It is true that CDPQ holds Lavalin's shares, but only 19.9 per cent. Why do you think that they have limited their share to 19.9 and not 20 per cent. Simply because CDPQ has no intention of taking control of SNC-Lavalin. CDPQ is a government-controlled pension fund that has investments in 68 countries. They have investments in over 775 companies in Canada alone, not just in SNC-Lavalin. They have made a total investment of over Rs 15.4 lakh crore across the world, and this includes Rs 32,000 crore in India.

I also don't understand this loathing for SNC-Lavalin. Was it not G Karthikeyan who choose Lavalin as consulatants for the renovation of Panniyar, Sengulam and Pallivasal? Was it not Karthikeyan who decided to hand over the consulatancy for the renoavtion of all hydel projects in the state to Lavalin.

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