Financial Daily from THE HINDU group of publications
Tuesday, Jan 18, 2005
Agri-Biz & Commodities
Money & Banking - Corporate Bonds
FCI to float bonds to raise Rs 1,000 cr
New Delhi , Jan. 17
THE Food Corporation of India (FCI) is all set to float its first tranche of bonds to mobilise Rs 1,000 crore out of the total Rs 5,000-crore market borrowings size allocated to it by the Finance Ministry.
"We will complete the first tranche in the current fiscal itself, which would help us discover the cost at which we can raise funds competitively from the market", the CMD of the public sector behemoth, Mr V.K. Malhotra, told presspersons here on Monday.
The proposed Rs 1,000-crore bond issue, which is inclusive of a green shoe option of Rs 500 crore, would be privately placed with banks, financial institutions, mutual funds and provident funds.
"The bonds would be of five to seven years tenor. Given that the benchmark yield for a 10-year Government of India paper is currently around 6.3 per cent and our payments have complete sovereign backing, we are confident of raising the sums at below 7 per cent," Mr Malhotra said.
Besides AK Capital Services, which is the lead arranger, FCI has appointed SBI Caps, ICICI Securities (I-Sec), UTI Bank and RR Finance as merchant bankers for the issue.
The Corporation's annual financing requirement currently ranges from Rs 20,000 crore to Rs 30,000 crore, with the figure even touching Rs 33,000 crore a couple of years ago when it was saddled with foodgrain stocks of over 60 million tonnes. This entire amount is now provided by a 61-bank consortium, led by the State Bank of India (SBI).
The interest charged on these funds is set at the average prime lending rate of five major banks in the consortium, which are SBI, Bank of India, Bank of Baroda, Canara Bank and Punjab National Bank.
While the interest rate charged by the consortium was as high as 10.95 per cent till December 31, 2003, it was gradually reduced to 9.35 per cent from January 1, 2004, 9.1 per cent from April 1, and 8.15 per cent since August 11.
FCI incurs an interest outgo of roughly Rs 2,500 crore every year, with this amount peaking at Rs 3,400 crore during 2002-03.
"We want to reduce this burden by going in for cheaper market borrowings. Every single percentage point reduction in the cost of raising funds translates into a yearly interest outgo saving of about Rs 250 crore," Mr Malhotra pointed out.
While the Corporation would ideally like to raise its entire working capital requirements through the market borrowings route, the CMD, however, emphasised that "we do not want to dispense with consortium lending altogether".
According to him, the main advantage with bank finance was the flexibility it offered.
"Our field officers can issue cheques within the cash credit limit sanctioned by the bank, which makes it a convenient and open-ended funding option," he pointed out.
FCI's huge financing requirements arises from the time lag between its expenditure on procuring grains and realising money from selling the same at below economic cost and obtaining re-imbursement from the Government even later.
Stocks above buffer norms
FOODGRAIN stocks in the Central pool are ruling just above the normative buffer necessary for meeting the requirements of the country's public distribution system.
As on January 14, the total stocks of wheat are estimated at 86.05 lakh tonnes (lt) and of rice 133.27 lt. The corresponding buffer norm for this date is 77.63 lt for wheat and 88.94 lt in the case of rice.
During the current 2004-05 kharif marketing season (October-September), FCI and State Government agencies have procured 143.93 lt of rice, which is higher than the 129.42 lt purchased in the same period of the previous season. During the whole of the 2003-04 season, total official procurement of rice hit an all-time high of 228.98 lt.
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