Thiruvananthapuram, Apr 6 : One of the main investors in the KIIFB's Masala Bond is a Government body in Canada, CDPQ, which has also invested in SNC-Lavalin, whose previous investment in India is a subject matter of litigation.
Kerala Infrastructure Investment Fund Board (KIIFB) has recently concluded its debut international issue by closing its INR 2,150 crore Masala Bond issue, KIIFB CEO KA Abraham said in a press statement here on Saturday.
CDPQ was created in 1965 under an act of the national assembly of Quebec. It is a public sector body whose entire beneficial interest is held by the Government of Canada, he said.
CDPQ is an institutional investor which manages pension funds and insurance programmes, and has its headquarters in Quebec, Canada.
It is the second largest pension fund in Canada. CDPQ has investments in 75 countries. From data available publicly, it is seen that the investments by CDPQ total USD 220 billion US Dollars (INR 15.40 lakh crore). CDPQ has offices in eight countries including India (New Delhi).
Public sources show that CDPQ has made 4.5 billion US Dollars (approximately Rs 31,500 crore). CDPQ makes its investments under the Foreign Portfolio Investor (FPI) or Foreign Direct Investment (FDI) regulations approved by the Government of India.
CDPQ has also purchased 130 million worth of securities issued by the GOI.
As seen from public information, it is also pertinent to note that CDPQ and the National Infrastructure Investment Fund Board (NIIF) set by Government of India are in talks to partner in various infrastructure projects in India.
CDPQ is a Government Company in Canada. From the Annual Report of SNC-Lavalin available in its website, it is seen CDPQ has business transactions with SNC-Lavalin.
The public website of SNC Lavalin also shows that along with CDPQ there are other Pension funds of Canada which have investments in SNC-Lavalin.
But SNC-Lavalin or none of the other institutions in which CDPQ has invested can have any ownership in CDPQ as it is a Government body of Canada.
Hence it would be illogical to connect any of the many investments of CDPQ as part of its total portfolio of USD 220 billion US Dollars, whether SNC-Lavalin or any other body, to the Masala Bond Deal of KIIFB.
The rate of interest at which KIIFB has borrowed funds is excessive. The KIIFB Masala Bond has been issued at 9.723 per cent rate of interest.
KIIFB is the only State Level institution that has borrowed from the Masala Bond Market with the approval of the Reserve Bank of India, he said.
To understand the reasonableness of the rates it is necessary to evaluate the interest rates in which such issues have been made in both the international market and the domestic market in India.
As regards the international market, so far only institutions which are rated at AAA by rating agencies have entered the Masala Bond Market.
This is the first time that an entity like KIIFB with a rating of BB, below the rating of the Central Government at BBB- had attempted a bond of this nature.
In the Masala Bond Market, investors evaluate three kinds of risks -- Liquidity Risk, Currency Risk and Credit Risk. All these risks are analysed before an investor makes the investment.
Even for a AAA rated agency, the investors in the Masala Bond market bid for rates which range from 1.25-1.75 per cent over the Securities issued by Government of India.
Considering these risks in the market, KIIFB with a BB rating has been able to obtain the best possible rate in the Masala Market when viewed against rates obtained by other institutions with a much superior AAA rating.
To evaluate the reasonableness of the KIIFB Masala Bond rate it is also necessary to look at similar bond issues in the Indian Market. The bonds issuances in the Indian Domestic Market for a tenor over one year was analysed in depth.
In comparison to KIIFB’s Masala Bond rate of 9.723%, the rates obtained by bond issuers rated similar to KIIFB in the domestic market for the last one year are significantly higher.
The lowest rate at which an A+ rated entity has been able to raise fund in domestic market has been at 9.87 per cent and that too for a 3-year bond with an issue size of just INR 37.5 crore.
Government entity like the Andhra Pradesh Capital Region Development Authority (APCRDA) which is a Government Body like KIIFB has raised funds in the domestic market at 10.32pc (payable quarterly).
Rates at which other institutions banks like Central Bank (10.8%), IOB (11.7%) and South Indian bank (11.75%) have raised funds during the period are much higher.
It can therefore be seen that the rates at which KIIFB has raised funds are much lower than what any institution like KIIFB has raised in the domestic market over the last one year.
It is hoped that such avoidable controversies without any reasonable basis do not affect the investment potential of Kerala in the future and deter international investors to come to Kerala.