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Shri Sharad Pawar, Minister for Agriculture, Consumer Affairs, Food and Public Distribution was presented the first tranche of FCI (Food Corporation of India) Bonds amounting to Rs. 1000 crore here today. This is the first tranche of private placement of the maiden issue of Government of India Guaranteed Bonds by the Corporation; carrying an average rate of 7.12 % for the tenure of 5 to 10 years. The FCI Bond issue was oversubscribed to the extent of Rs. 9000 crore in a record time of just one day against the target of Rs. 1000 crore. The issue was well received by all segments of institutional investors particularly banks, financial Institutions, Insurance Companies, Mutual Funds, Provident Funds etc.
The current issue of bonds is the first tranche out of the total Rs.5000 crore-market borrowings size approved by the Government of India in phase I. The private placement of bonds for the remaining amount is being completed in this financial year. The FCI has already initiated the process for further borrowings to the extent of Rs. 5000 crore by way of bonds/term loans in phase –II.
The FCI has been borrowing an average of Rs. 25000 crore from a Consortium of Banks consisting of 61 member under the leadership of State Bank of India. The interest charged on consortium borrowings is based on an average of prime lending rates of five major banks in the consortium. While the interest rate charged by the Consortium was hovering at 10.95% in December 2003, the FCI in its recent efforts to bring down the interest cost has been able to make a significant headway by getting interest reduction from SBI led consortium to 9.35% from 1st January, 2004 and 9.1% since April 2004. The SBI led Consortium has further agreed to reduce the rate of interest to 8.15% from 11th August, 2004. This reduction of interest itself would yield a saving of approx. Rs. 700 crores per year. Every reduction of 1% in interest rate translates into a saving of Rs. 250 crores per year on the average fund requirements of Rs. 25,000 crore by the FCI. The saving in interest rate is around 2% compared to the existing effective rate charged by the SBI led banking Consortium for food credit.
The amount raised by way of current Bond Issue is the first step towards Debt Restructuring Plan of the FCI. An appropriate mix of borrowings by way of bonds, term loans and consortium financing for meeting the total funding requirements of FCI would be resorted to keeping in view the seasonal variations in cash flow and core funding requirements of the FCI. The FCI also has plans to explore interest rate swaps, external commercial borrowings and any other market friendly instruments for its fund requirement with the help of Merchant Bankers/Fund Manager.
FCI has been relying on a single source of financing since inception from 1965 and the current issue of bonds is a significant land mark achievement to seek cheaper sources of finance. In addition to diversifying the funding sources, the Bonds Issue would also enable “price discovery” which would serve as benchmark in pricing the term loans as also cash credit facility currently being availed of from the Consortium of Banks.
SBK:CP:bonds22.2
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