Thiruvananthapuram: The state government and Kerala Infrastructure Investment Fund Board (KIIFB) on Monday said the baseless allegations being levelled by the Opposition were taking the sheen out of the great victory achieved through the masala bond.
KIIFB CEO K.M. Abraham sought to clarify on the questions being raised about the masala bond and the alleged link of the Canadian company CDPQ with SNC-Lavalin.
Question: Aren't there cheap sources of finance available at one per cent and two percent ?
Answer: That is true. But all that financing cannot be achieved by KIIFB. Financing can be accepted as part of the state government borrowing through the budget under what is called fiscal responsibility guidelines. We have to borrow under Fiscal Responsibility and Budget Management (FRBM) Act and KIIFB cannot accept funds under the Act. That is constrained by the limit which the Government of India will fix and it cannot be used by KIIFB to finance Rs 50,000- crore worth plans it has.
Q. What about dollar bonds which are available at lower rates?
A. Under the dollar bonds, funds are available in the international market at four per cent or five per cent. The funds borrowed in dollars means we have to bear the entire exchange rate fluctuations. We need to go for hedging. Buy hedge against possible increase in prices. The hedging typically cuts five to six per cent. Add the hedging cost to the dollar bond cost and it comes out more than what we have been able to get now.
Q. How is 9.723 rate impressive and attractive?
A. The 9.723 per cent rate is excessive. This has to be viewed against the fact that we have only a rating of BB. BB is four notches below the AAA. So far only investors with AAA have access to masala bond market. Technically the assessment is that for every notch that we go below AAA we stand to lose five per cent. We have to pay an extra interest of 0.5 per cent. Which means, because of that four notch any investor will have to pay whether KIIFB with a double B listing will actually have to pay 2.5 per cent more than what an AAA investor will get. India is BBB minus and we are two notches below. For the state government it is the best rating we aspire to get. With BB rating when we go to the market we are not going to get the same rate that the AAA-rated people will get. We will lose about two percentage points. For instance it means if someone is going to get it at 8.5 per cent, the KIIFB will have to get it at 10.5 per cent. It is in that situation that we have got it at 9.723 per cent. People who know finance would agree that it is a great achievement on the part of KIIFB.
We had already approached domestic bond market and floated invitations for bids. The best price we got was only 10.25 per cent. When compared to the rate in domestic market, what we got at the international level is more attractive.This is for the first time in the history that this government has been able to mobilise a significant sum of Rs 2150 crore in the international market. No other state has done it. This is the time Kerala should celebrate the development.
Unfortunately, this controversy is taking the sheen away from the great victory this government had been able to achieve. I think that is something that should bother every Malayali. No team that came from the Canadian company CDPQ to meet me has met the chief minister so far. So there is no question of the CM getting involved in at all.
Q. What is the CDPQ profile and its link with SNC- Lavalin ?
A. CDPQ is an investor with 220 billion dollars (Rs 15.5 lakh crore), that is two times the state domestic product of Kerala. They have invested across 60 countries. In India apart from the investment made in KIIFB last week, they have investment of 4.5 billion dollars (Rs 31500 crore). CDPQ has financed the Lavalin not because we asked them to do so. SNC- Lavalin says CDPQ has invested 19.9 per cent in their company. So the question is why 19.9 per cent. Under the Quebec Law, you need to cross 20 per cent to achieve controlling interest. As far as CDPQ is considered Lavalin is just one company of many investments. The chief minister clarified on Monday that SBI has relations with Kerala government. SBI has also financed Nirav Modi. So that does not mean Kerala government is responsible for what Nirav Modi has done.
‘Creating misinformation’
The mission leader of CDPQ team is Eric Lemieux, director investments. From the website of SNC-Lavalin it is seen that they have a director whose name is Eric Siegel. Creating misinformation based on the similarity of the names is unfortunate. Opposition Leader Ramesh Chennithala had alleged that Eric Siegel led the discussions with the government.
