THIRUVANANTHAPURAM: Even as Finance Minister T M Thomas Isaac defended the borrowings made by Kerala Infrastructure Investment Fund Board (KIIFB), the decision to approach the international debt market by issuing Masala Bonds was controversial from the beginning. The opposition UDF has been questioning the logic behind raising money at a higher interest rate and the lack of transparency in the process.
At a time the final report of the Comptroller and Auditor General (CAG) containing the controversial remarks on KIIFB is set to engage the upcoming assembly session in January, KIIFB CEO K M Abraham is learnt to have expressed his desire to hang up his boots, though the finance minister has denied the reports.Masala Bonds are bonds issued outside India but denominated in Indian rupees, rather than a foreign currency. KIIFB was the first sub-sovereign body in the country to issue Masala Bonds.
Now it is learnt that the then chief secretary Tom Jose and finance secretary Manoj Joshi had raised doubts on the benefits of the bonds in the KIIFB general board meet on October 2, 2018. Though the officers wanted to explore the option of borrowing from the domestic market where the interest rates are cheaper, Isaac supported the CEO’s move.
An entry into the international markets was found to be attractive for Isaac though he acknowledged later in the assembly that the interest rate was on the higher side. But he had also said that the floating of domestic bonds did not work out as interest rates ranged from 10.20 per cent to 10.25 per cent while Rs 2,150 crore was raised through Masala Bonds at 9.723 per cent.
The government celebrated the successful listing of Masala Bonds in the London Stock Exchange with Chief Minister Pinarayi Vijayan attending the event in April 2019. The finance minister planned to borrow Rs 50,000 crore using the same mechanism in the next three years and the money for repaying the loans was calculated from the vehicle tax and petrol cess. K S Sabarinadhan, MLA, accused the government of paying a higher interest for questionable motives.
He said various organisations, which raised money through Masala Bonds during the same period, did so at interest rates ranging from 5.85 per cent to 7.375 per cent. The organisations such as National Highways Authority of India raised Rs 3,000 crore at 7.3 per cent interest while National Thermal Power Corporation raised Rs 2,000 crore at 7.375 per cent.
K M Abraham was appointed the CEO of KIIFB on December 30, 2017, a day prior to his retirement as the chief secretary. His term in KIIFB is ending on December 31 and he has requested the government to not extend the term. K M Abraham told TNIE that he would not seek another term as KIIFB CEO.
KIIFB refutes allegation
The KIIFB has issued a statement denying the allegation that it could have borrowed at cheaper rates from the domestic market than raising money from overseas. The board has explored the domestic market. But the lowest rate quoted in the tender was 10.15 per cent, while the interest for the Masala Bonds was 9.723 per cent, said the statement. “The allegation that other institutions raised money at lesser interest was made without knowing the facts,” it said. The bonds issued in US dollar have the lowest rate and Masala Bond issued in Indian rupee command an interest of 4.68 per cent when converted to the dollar rate. Hence, KIIFB has got the lowest rate from the international market, said the statement. It also said that 90 per cent of the Rs 2,150 crore borrowing had been utilised for various development projects.
