The government will buy back the outstanding fertiliser bonds worth Rs 6,945 crore from fertiliser companies at a discount and compensate for 50% of their losses.
Unable to take higher fertiliser subsidy on the Union Budget, the government has resorted to issuance of bonds worth Rs 27,500 crore to domestic fertiliser companies towards payment of its subsidy bills in 2007-08 and 2008-09.
Out of which, the Centre has already re-purchased bonds worth Rs 20,555 crore from the fertiliser companies to provide them with liquidity.
"The government has agreed to buy back the remaining Rs 6,945 crore worth fertiliser bonds from next week," a senior fertiliser ministry official told PTI.
The Cabinet Committee on Economic Affairs (CCEA) has given its nod to a proposal to allow the government to buy back the outstanding fertiliser bonds, the official said.
The government will re-purchase bonds from fertiliser companies at a discount and will reimburse 50% of losses, estimated at over Rs 700 crore, occurred in the buy back of bonds, the official said.
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The ministry has issued a circular in this regard and intimated as many as 16 companies, including IFFCO, about the buy back of the fertiliser bonds from next week.
According to the circular, the Indian Farmers Fertiliser Cooperative Ltd (IFFCO) is eligible to redeem bonds worth Rs 3,319 crore. The second biggest possible redemption would be for Indian Potash Ltd, Rs 1,432 crore.
The buy back of bonds will improve the working capital of the fertiliser company, who have to import inputs and raw materials such as naphtha, rock phosphate, phosphoric acid for production at skyrocketing prices from the global market.
The fertiliser companies, who are facing financial crunch, are not able take loan from banks by keeping these bonds as collateral due to lack of statutory liquidity ratio (SLR) status.
And the fertiliser makers cannot hold these bonds for their life-period of 18 years and they have no options but to dispose of these bonds at lower prices in the open market for raising cash to meet their investment expenditure.
The government's fertiliser subsidy bill in 2007-08 and 2008-09 stood at Rs 43,319 crore and Rs 99,494 crore, respectively.