Financial Daily from THE HINDU group of publications
Friday, Jun 25, 2004
Port trusts mull refinancing high-cost debts
Bangalore , June 24
IT is now the turn of all the major port trusts to begin refinancing some of their high-cost debts to the Centre.
Sources said that some have already tapped the public sector banks for refinancing their debts. So far all the major funding requirements of the port trusts were met entirely through budgetary resources or through internal generation.
Among the ports that have approached PSU banks for refinancing include the Cochin Port Trust (CPT). CPT's financial advisor, Mr G. Krishnakumar, said, "We have about Rs 150 crore of Government borrowings and we are attempting to refinance some of it."
Port trusts are attempting to refinance the debts to take advantage of the low interest regime. This was because the average cost of borrowings from the Government was about 11 per cent. The port trusts, the sources said, took the cue from some public sector utilities that resorted to swapping high costs debts with low cost funds. In the process, the utilities have managed to raise term funds at interest rates as low as 7 per cent. Port trusts, the sources said, were also exploring such deals since such debt swaps would help them to reduce their interest expenditure, by a minimum of at least 3 per cent.
Given the high cost of servicing, the Government funds, port trusts want to substitute Government loans with institutional /bank borrowings. This is almost identical to the debt swaps the Government had affected with the State Governments last year, when they were allowed to retire plan and non-plan loans with additional market borrowings.
However, sources said, some banks have expressed reservations on this kind of refinancing. Unlike the debt swaps for states, the sources said, there were no explicit sovereign guarantee for the port trust borrowings. This would mean that the banks would have to assume the credit risks on their own balance sheets. Besides, the sources said, that borrowings would have to be fully risk weighted. In the case of the State Government debt swap, the risk weighting was zero.
Similarly, the sources said, in the case of the refinancing of some of the public utilities, bankers were given a lien on either the assets or some of the cash flows. However, the sources said ports are treated as sovereign assets.
Under the present legal regime sovereign-owned assets cannot be mortgaged, unless the port trusts are converted into public sector undertakings.
Besides, for ports assigning revenues also involved legal complications. This was because only the Government had the first charge. Consequently, any funding to the ports would be in the nature of unsecured advances or would have to be in the form of investments in unsecured bonds floated by the Trusts, supported by specific guarantees.
The sources said that PSU banks had sought these clarifications on these techno-legal issues before direct financing for port trusts could begin.
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