7% Government of India Special Bonds 2022, for the fertiliser companies

As part of the stimulus package announced for various industries, the Union government had announced 7% Government of India Special Bonds 2022, for the fertiliser companies. The special bonds are transferable and eligible for ready forward transactions (Repo), improving their market demand. Better liquidity means the companies will not have to sell the bonds at a steep discount as was the case earlier. Though the government has issued fertiliser bonds in the past, they did not have a repo status. Over the past one week, shares of Tata Chemicals, Chambel Fertilizer and Chemicals, Gujarat Narmada Valley Fertilizer Company (GNFC), Nagarjuna Fertilziers (NFCL), Managalore Chemicals and Fetilziers, Rashtriya Chemicals and Fertilizers (RCF), Zuari Industries and Coromandel Fertilizers, to name a few, have risen around 24%. On Monday, frontline stocks in the sector were up between 3-7%. “The move will improve liquidity in these (fertiliser) bonds and will help the industry sell them at par. This, in itself, is a major boost for the cash -strapped industry, which could not earlier liquidate them due to huge discounts of around 10% earlier,” said US Jha, CMD of Rashtriya Chemicals and Fertilisers (RCF). Industry sources say the government has advised fertiliser companies to borrow under the collateralised borrowing and lending obligations (CBLO) scheme for the next couple of months till the effect of the recent rate cuts become visible. Once the interest rates ease, these companies will be able to offload their bonds at par value, without incurring any loss. “The government has assured us that these bonds will be made eligible under CBLO and we are expecting a RBI notification soon,” a senior official with a leading fertiliser company said. Once eligible under CBLO, fertiliser companies will be able to raise cheaper loans by pledging these securities with banks. Fertiliser bonds are classified as eligible investments for provident funds, gratuity funds and superannuation funds, as per a ministry of finance order. Similarly, investments in special bonds by insurance companies are eligible under classification of other approved securities, the notification added. With India’s agri production touching record highs, most fertiliser companies are in the midst of an expansion drive. State-run GNFC plans to infuse around Rs 3,000 crore in capacity expansion over the next three years. Tata Chemicals has already spent Rs 350 crore on Babrala and Haldia expansion and debottlenecking and it may soon kick-start its debottlenecking plans which had been postponed due to the ongoing credit crunch. Tata Chem had earlier said it would debottleneck its 3,000-tonne per day Babrala plant to add 500 tonne per day of urea at Rs 200 crore. Urea maker Nagarjuna Fertilizers & Chemicals has also plans to set up overseas plants and foray into complex fertilisers. Nagarjuna plans to set up an urea plant in Nigeria with a maximum capacity of two million tonnes, and is in talks to tie up gas supplies in the Middle East and other regions.